Asian Stocks Rise on Soft US Inflation Despite Middle East Tensions

Global markets are currently balancing a contradiction: cooling inflation and strong corporate earnings against a backdrop of escalating Middle East hostilities. The MSCI global equities index rose Tuesday, buoyed by a U.S. Consumer Price Index (CPI) that climbed 3.5% in the 12 months through June, down from a 4.2% surge in May.

This softer-than-expected data, which included a 0.4% monthly decline largely attributed to retreating gasoline prices, shifted investor sentiment.

Asian Market Reactions and Chinese Economic Slowdown

The rally on Wall Street carried into Wednesday’s trading in Asia. South Korea’s Kospi saw the most dramatic jump, surging 7.1% to 7,343.37 as semiconductor stocks rebounded. Other regional benchmarks followed suit, though gains were moderate due to the looming threat of all-out war between the U.S. and Iran.

• Japan: Nikkei 225 rose 0.9% to 68,353.91.
• Hong Kong: Hang Seng edged up 1.6% to 24,721.10.
• Australia: S&P/ASX 200 rose 0.2% to 8,830.00.
• China: Shanghai Composite lost 0.4% to 3,952.04.

The dip in Shanghai comes as the Chinese government reported a sharp economic slowdown. The economy expanded at a 4.3% annualized pace in the April-June quarter, a drop from the 5% growth recorded in the first quarter of the year.

U.S.-Iran Conflict and the Strait of Hormuz

Despite the inflation-led rally, geopolitical instability is driving energy prices higher. The U.S. military reported launching strikes against Iranian targets for three successive nights, while Iran fired ballistic missiles at a U.S. air base in Jordan.

Control of the Strait of Hormuz remains a critical flashpoint. While President Donald Trump recently backed away from a proposal to charge a 20% transit fee for the strait—opting instead to seek investment deals with Gulf states—Iran remains defiant. Deputy Foreign Minister Kazem Gharibabadi told state TV that the strait is part of Iran’s national security and the country will exercise sovereignty over it whatever the cost.

Energy and Precious Metals Price Volatility

Supply concerns and military strikes have pushed crude oil to roughly one-month highs. Prices have fluctuated as the market reacts to the instability in the Gulf.

Corporate Earnings and the Federal Reserve Outlook

Wall Street found additional support in strong financial sector results. JPMorgan Chase reached an all-time high following a record quarterly profit, while Goldman Sachs, Bank of America, and Citigroup all beat Wall Street profit estimates. However, the tech sector was mixed; IBM shares plummeted 25% after warning of a second-quarter earnings hit due to a corporate shift toward data-center infrastructure over software.

The Federal Reserve’s direction remains a primary focus. Chair Kevin Warsh reaffirmed the bank’s 2% inflation target in his semi-annual monetary policy report to Congress, emphasizing an equal commitment to the employment mandate. This stance, combined with the CPI data, led to a broad weakening of the U.S. dollar.

The dollar index fell 0.33% to 100.94. Against the Japanese yen, the dollar weakened to 162.16 (from 162.19), and the euro rose to $1.1436. In the bond market, the yield on the benchmark 10-year Treasury note dropped to 4.589%, a move Peter Cardillo of Spartan Capital Securities said should relieve some worries in the bond market.

Despite the current optimism, some strategists warn that the geopolitical risk is not yet gone. Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, noted that while the market is currently discounting the conflict, it remains an overhang that is dampening market strength from the bank results. Ghriskey warned that the favorable CPI numbers could be very different next month given what we’re seeing in the oil market.

Find more reporting in our Business section.