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Asian shares rise, dollar defensive after mild inflation data

The U.S. Dollar was weaker on Wednesday as data revealed both the resilience of major economies and the necessity for central banks remain accommodative.

Wall Street reached new heights Tuesday due to the increasing certainty that the Federal Reserve would cut interest rates in a month. Japan's Nikkei surpassed the 43,000 mark for the first and cryptocurrency ether reached a four-year high.

The much-anticipated U.S. Inflation readings showed that President Donald Trump's new tariff regime has not yet reached consumer prices. A report in Japan showed that manufacturers were more confident after the United States signed a trade deal.

In a client note, Paco Chow (dealing manager at Moomoo Australia & New Zealand) wrote: "It is clear that investors will pile money into the markets, especially tech stocks, regardless of their high price tags."

Chow explained that "they're riding 95% on the likelihood of a Fed rate reduction in five weeks, and feel comforted by the fact that inflation only creeps up, but is not out of control."

The MSCI All Country World Index rose for the second consecutive day, reaching a new record high of 948.54. The Nikkei index of Japan's stocks rose by 1.4% and reached a new high for the second consecutive session.

The U.S. Labor Department reported that the consumer price index increased 2.7% over the past 12 months, which was slightly lower than the 2.8% predicted by economists polled. Tankan, a Tankan survey that tracks the Bank of Japan quarterly tankan business surveys, showed that Japanese manufacturers' confidence index increased for a second consecutive month. A second report shows that wholesale inflation in Japan slowed down in July. This confirms the central bank's belief that raw material cost pressures will subside. S&P 500 index and Nasdaq reached record highs on Wall Street after President Trump's executive order halting triple-digit tariffs on Chinese imports.

According to CME FedWatch, traders are now pricing in 94% of a Fed rate cut in September. This is up from 86% just a day earlier and 57% about a month ago. Investors were on tenterhooks because the data came after a shockingly weak jobs report released on August 1. It could have stoked concerns about stagflation. Trump nominated White House advisor Stephen Miran to fill a vacant seat on the board of the U.S. Central Bank, sparking speculation about presidential intervention in monetary policies. The White House also said that it was "the Plan" for the Bureau of Labor Statistics to continue publishing its highly-anticipated monthly employment report following Trump's choice to lead the agency, E.J. Antoni proposed to suspend its release.

Chris Weston said that speculation the report would be stopped had "done USD no favours" and only encouraged foreign investors to review the hedging ratios of U.S. investment, he added.

The dollar remained unchanged at 147.84 Japanese yen. After a 0.5% increase in the previous session, the euro edged up by 0.1% to $1.1684. The dollar index (which tracks the greenback versus a basket major peers) fell for a second consecutive day. Ether reached $4,634.70 in early trading, its highest level since December 2021. It then fell by 0.9%.

U.S. crude oil fell 0.05%, to $63.14 per barrel. Gold spot was unchanged at $3,348.1 an ounce. Early trade saw the Euro Stoxx 50 futures, which span Europe, rise 0.2%. The German DAX futures also rose 0.3%, and FTSE Futures rose by 0.1%. U.S. stocks futures and the S&P500 e-minis were not much changed.

(source: Reuters)