Asia Open: US CPI faced some shrug-off, Chinese equities continue to shine

US consumer price index (CPI) pushed back Fed’s rate cut timeline

Beyond keeping an eye on Trump’s reciprocal tariff plan, spotlight overnight has been on the US inflation data, which came as an initial jolt for markets. January’s headline CPI rose 0.5% month-on-month—the fastest pace since September 2023—while core inflation climbed 0.4%. Unlike previous readings where the blame can be pushed to shelter costs as the primary culprit, pricing pressures have been more broad-based this time. The Federal Reserve (Fed)’s path to further easing has surely narrowed, with policymakers unlikely to budge from their hawkish stance anytime soon.

Fed rate expectations recalibrated the way it should, with a pushback in Fed rate cut bets to September/October from the initial June/July period. The US dollar initially jumped, alongside surging Treasury yields, with the US 10-year yields heading back above the 4.6% to close at 4.62%.

Despite the initial sell-off, major US indices showed resilience, paring the bulk of their losses by the close. Some may argue that more inflation data is still needed to establish a trend, and with markets already positioned for a prolonged Fed hold, dip-buying suggests an initial overreaction. No doubt bearish bets have been caught on the wrong foot lately, as pressures from DeepSeek, tariff talks, and now inflation failing to trigger a market pullback.

Asia Open

The Asian session heads off to a more positive session, with the Nikkei +1.14%, ASX +0.34% and KOSPI +0.52% at the time of writing. Market participants will welcome the dip-buying reaction in Wall Street overnight, suggesting a partial shrug-off of higher-than-expected US inflation data while attention is refocused on more optimistic developments, such as hopes for a Ukraine-Russia ceasefire.

One may argue that tariff risks have not been well considered so far and has been an underpriced factor. US President Trump is set to sign reciprocal tariffs order this week, which may add to inflation jitters if it comes into effect. But with countries scrambling to strike a consensus before the tariff hits, the dynamics have been different from the 2018 trade war, which followed a “strike first, talk later” approach. With countries now actively working toward a consensus before tariffs take effect, there are hopes that the ultimate impact may be more measured.

Chinese equities continue to shine, with the Hang Seng Index (HSI) adding another 2.6% gain in yesterday’s session. The break above the 21,385 level of resistance may offer bullish conviction, as its daily relative strength index (RSI) has shown to defend its midline on two earlier occasions. The October 2024 high will be eyed by buyers next, and the broader higher-high-higher-low mechanism in place since January 2024 (weekly chart) may raise the odds of an eventual upward break.

The ASX has also clocked in yet another all-time high, seemingly setting its sight on the 8,700 level. This is where an upper channel trendline resistance may stand in place, with the upward trend aligning well with its broader higher-highs-higher-lows structure, while its daily RSI continues to trade above its midline. Any downside will leave the 8,474 level as key support to hold.