Asian shares join global rally on softer-than-expected U.S. inflation

Asian shares extended a global rally on Thursday after softer-than-expected U.S. inflation data encouraged bets of less aggressive rate hikes from the Federal Reserve, while the dollar struggled for footing after its biggest plunge in five months, Reuters reported.

U.S. consumer prices were unchanged in July compared with June, when they rose a monthly 1.3%. The July result was lower than expectations due to a sharp drop in the cost of petrol, causing markets to reposition on hopes that inflation was peaking.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS surged 1.4% to the highest in six weeks, buoyed by a 1.8% jump in Hong Kong .HSI, a 1.2% advance in South Korean shares .KS11 and a 1.5% gain in China’s blue chips .CSI300.

The risk-on sentiment is set to continue in Europe when markets open, with the pan-region Euro Stoxx 50 futures STXEc1 last up 0.4%. The S&P 500 futures ESc1 rose 0.2% and Nasdaq futures NQc1 gained 0.3%.

Overnight on Wall Street, the S&P 500 .SPX rose more than 2% after the inflation report, while the Nasdaq Composite .IXIC added 2.9%. The Nasdaq has now gained more than 20% from its June low.

Slowing U.S. inflation may have opened the door for the Federal Reserve to temper the size of coming rate hikes. Traders now price in a 50 basis point (bps) rate hike next month, compared with the 75 bps increase that had been expected before the inflation report.

U.S. Treasuries, which had pulled back from an earlier plunge in yields as traders reassessed the Fed’s rate path, were not trading in Asia on Thursday due to a holiday in Japan.