Kospi rockets 7% as US inflation shock unleashes Asia-wide rally

Asian stocks rallied on Wednesday as a surprise drop in US inflation eased fears of an imminent Federal Reserve rate increase, while a pause in oil’s surge removed some of the pressure that had dominated markets earlier in the week.

South Korea’s Kospi surged 7%, Japan’s Nikkei 225 rose 1% and MSCI’s broadest gauge of Asia-Pacific shares outside Japan gained 2.4%.

The advance followed gains on Wall Street, where strong bank earnings helped the S&P 500 and Nasdaq close higher despite IBM’s 25% sell-off. US futures also pointed upwards.

Softer inflation resets the rates debate

US consumer prices fell 0.4% in June, the largest monthly decline since April 2020, as energy costs dropped sharply. Core prices were unchanged from May, while the annual core inflation rate slowed to 2.6% from 2.9%.

The report prompted traders to cut the probability of a July Fed increase to about 16%.

Two-year Treasury yields fell 11 basis points to 4.19%, reversing part of the previous session’s rise to a 17-month high.

Strategists said the combination of cooling inflation and resilient corporate profits could support a broader equity advance.

Major US banks delivered strong second-quarter results, helped by buoyant trading and investment-banking activity, giving investors another reason to move back into risk assets.

AI enthusiasm faces a fresh credibility test

The Kospi’s outsized gain reflected another sharp swing in semiconductor shares after several volatile sessions.

Attention now turns to ASML, which is due to publish second-quarter results on Wednesday.

The Dutch company’s bookings and outlook will offer a fresh reading on spending across advanced chip manufacturing.

The optimism remains fragile. IBM lost about a quarter of its value after warning that second-quarter revenue would rise just 1% to $17.2 billion, below the $17.86 billion expected by analysts.

Its adjusted profit forecast also missed estimates.

The warning suggested corporate technology budgets are shifting towards AI infrastructure, including servers, memory and data centres, at the expense of traditional software and consulting.

That split is making investors more selective even as spending on the wider AI buildout remains strong.

China slowdown and oil risks temper the relief

China’s economy expanded 4.3% from a year earlier in the second quarter, missing forecasts as weak domestic demand offset stronger industrial production and exports.

A rebound in June retail sales offered some encouragement, but economists expect any policy support to remain targeted rather than broad-based.

The yuan strengthened to a one-month high, although mainland equities lagged the regional rally.

Investors are still waiting for clearer evidence that household spending and the property market are improving.

Brent crude steadied near $85.80 a barrel after gaining almost 13% this week.

President Donald Trump dropped a proposed 20% charge on ships using the Strait of Hormuz, easing one immediate concern, but the US blockade of Iranian ports and renewed military strikes kept the geopolitical risk premium firmly in place.