Inflation continues to decline in major economies. The Japanese index reached a 33-year-high

The US consumer prices fell from 5.5% to 5.3% year-over-year. Core inflation fell sharply from 4.9% to 4%. This was the eleventh consecutive month of decline in overall inflation and the lowest level since early 2021, but it is still double the Fed’s stated target of 2%. The US inflation data raised the odds of the Fed pausing to raise rates today from 81% to 93%. The US factory inflation (PPI) data will be released today.

Since investor expectations today are mostly for a rate pause scenario, more attention will be paid to policy recommendations and fresh economic forecasts to determine what happens next. The Fed’s more data-driven stance and policy flexibility language could be seen as less hawkish. On the other hand, if the interest rate forecast is revised upward along with inflation estimates, this could lead to a longer-term interest rate outlook and revive hawkish fears.

Germany’s inflation rate fell from 7.2% to 6.1% year-on-year. Inflation in Europe’s largest economy continues to decline but remains three times higher than the ECB’s target level. Food prices are still the biggest driver of inflation.

Bank of England governor Andrew Bailey said yesterday that inflation in the country would continue to decline, but it will take longer. Strong labor market data yesterday bolstered investor confidence that the Bank of England will hold at least two more 0.25% rate hikes.

Asian markets traded higher yesterday. Japan’s Nikkei 225 (JP225) gained 1.80% on the day, China’s FTSE China A50 (CHA50) gained 0.38%, Hong Kong’s Hang Seng (HK50) gained 0.60%, while Australian S&P/ASX 200 (AU200) closed positive by 0.23%. Most Asian stock indices rose Wednesday as weak US inflation data bolstered expectations that the Federal Reserve will suspend its interest-rate hike cycle.

Japan’s Nikkei (JP225) hit new 33-year highs. Sentiment for Japanese stocks was largely supported by expectations that the Bank of Japan will maintain its ultra-soft policy this Friday.

The People’s Bank of China (PBOC) cut the 7-day reverse repo rate to 1.9%, which was previously at 2%. The Chinese government is taking additional stimulus measures to support the slowing global economic recovery. The move raised fears about how deep the economic cracks in China were after three years of blockage due to Covid-19.