Asian equities follow Wall Street higher on hopes of Fed rate pause

Asian equities followed Wall Street higher on Wednesday after a weak reading on US inflation boosted expectations that the Federal Reserve would not raise interest rates in June.

Japan’s benchmark Topix index rose 1.4 per cent, while China’s CSI 300 index of Shanghai- and Shenzhen-listed shares climbed 0.5 per cent and Australia’s S&P/ASX 200 index rose 0.3 per cent.

Those gains came after the benchmark S&P 500 index rose 0.7 per cent and the tech-focused Nasdaq Composite gained 0.8 per cent on the same day US consumer price data showed headline inflation had slowed to a year-on-year rise of 4 per cent in May, down from almost 5 per cent in April.

The weak inflation reading helped reinforce market expectations that the Fed would keep interest rates unchanged at the conclusion of its monetary policy meeting on Wednesday, although investors said the central bank could move to tighten policy again in July.

“Our expectation is that the Fed will leave rates unchanged, in line with market pricing,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management. “However, we also expect policymakers to send a clear message to markets that at least one more rate hike is likely at a later meeting.”

Economists still expect the European Central Bank to raise its deposit rate by another 0.25 percentage points at its meeting on Thursday.

Shares in China were also buoyed by growing hopes for policy support from the People’s Bank of China after the central bank lowered its short-term lending rate on Tuesday for the first time in nine months.

Analysts at Goldman Sachs said the move “could suggest the start of additional monetary policy easing” and expected the PBoC to cut its one-year medium-term lending facility rate on Thursday by 0.1 percentage points. The rate serves as the floor for China’s benchmark prime loan rate.

Futures markets tipped the S&P 500 to open flat later in the day, while the FTSE 100 was expected to shed 0.2 per cent.