Asian Stocks Gain as US Rate Hike Odds Plummet

Asian stocks are set for their strongest week in two months as inflation data from the US dented expectations of an imminent rate hike. The benign inflation reports lowered the odds of a rate increase from the Federal Reserve next month, causing risk appetite to rise.

The Brent futures steadied at $87.03 per barrel after a drop on Thursday but were set for a 4% weekly gain, snapping a two-week losing streak. This is due in part to the US threatening to ramp up economic pressure on Iran, including extending a naval blockade.

Markets have focused on the broad AI theme and the global monetary policy outlook instead of the lack of progress in ending the Iran war. Charu Chanana, chief investment strategist at Saxo, noted that risk appetite can hold for now because the immediate Fed hike risk has been repriced lower.

However, John Sidawi, senior portfolio manager for fixed income at Federated Hermes, warned that markets appear willing to tolerate a significant amount of uncertainty without demanding higher risk premiums. He added that this equilibrium is unlikely to be permanent and could change with a meaningful escalation in conflict or a clear path toward resolution.