Asia Stocks Surge on Softer US Inflation, BoK Maintains Rates Amid Political Unrest

Asian stock markets saw significant gains on Thursday, driven by optimism following softer-than-expected U.S. inflation data. Meanwhile, the Bank of Korea (BoK) surprised markets by keeping interest rates unchanged, despite forecasts of a rate cut amid heightened political instability.

US Inflation Relief Spurs Global Market Optimism

The rally in Asian stocks was fueled by a strong performance on Wall Street, as U.S. inflation figures released on Wednesday aligned with expectations. The U.S. Consumer Price Index (CPI) for December rose 0.4%, while core inflation—closely monitored by the Federal Reserve—grew at a slower pace than anticipated. This data eased concerns over aggressive monetary tightening, providing a boost to investor sentiment.

U.S. stock futures remained stable during Asian trading hours on Thursday, reflecting sustained optimism in global markets.

Focus Shifts to BoJ’s Upcoming Policy Decision

Attention now turns to Japan, where the Bank of Japan (BoJ) will announce its interest rate decision next week. BoJ Governor Kazuo Ueda signaled the possibility of a rate hike if economic and inflationary conditions continue to strengthen.

Japan’s Nikkei 225 index edged up 0.4% on Thursday but underperformed regional peers due to a strengthening yen, which pressured export-dependent sectors. A rising yen reduces the competitiveness of Japanese goods abroad, squeezing profit margins for exporters and weighing on market indices.

Mixed Performance in Chinese and Hong Kong Markets

In China, markets exhibited caution ahead of a crucial data release on Friday. The Shanghai Shenzhen CSI 300 index rose 0.1%, while the Shanghai Composite gained 0.2%. Hong Kong’s Hang Seng index outpaced mainland markets with a 0.7% increase.

Investors are awaiting key economic reports, including China’s full-year 2024 Gross Domestic Product (GDP) growth, December’s industrial production, and retail sales data. These figures are expected to shed light on the health of the Chinese economy as it closed out the year.

BoK Defies Expectations Amid Political Turmoil

South Korea’s KOSPI index jumped 1.2%, even as the central bank defied expectations of a rate cut. The BoK announced on Thursday that it would maintain its policy rate at 3.00%, countering widespread forecasts of a 25 basis point reduction.

This decision comes against the backdrop of a severe political crisis following the arrest of President Yoon Suk Yeol, who faced allegations of attempting to impose martial law. The BoK’s move is seen as a measure to stabilise the South Korean won, which recently plunged to a 15-year low against the U.S. dollar, exacerbating economic uncertainties.

Key Takeaways for Investors

• The softer U.S. inflation reading has bolstered global equity markets, reducing fears of aggressive interest rate hikes by the Federal Reserve.
• Markets are closely monitoring the Bank of Japan’s policy direction amid speculation of a potential rate hike.
• Chinese economic data set for release on Friday will play a crucial role in shaping market sentiment for the region.
• South Korea’s central bank’s unexpected decision to hold rates steady highlights the growing economic challenges linked to domestic political instability and currency pressures.

(Sources: inveting.com, reuters.com, ChatGPT)