Asian stocks on track for best week since June on softer U.S. inflation

Asian equities were set to close the week with their strongest performance since mid-June, as softer U.S. inflation data reinforced expectations for earlier Federal Reserve interest-rate cuts and extended a rebound in technology shares.

The MSCI Asia ex-Japan index was up 2.3% for the week, led by gains in chipmakers and software firms that benefit from lower borrowing costs. The advance follows a U.S. consumer-price report showing annual inflation cooled to 3.3% in May from 3.4% in April, below forecasts and reinforcing bets on a September rate cut by the Fed.

Technology stocks in the region tracked Wall Street’s tech rebound, with South Korea’s Kosdaq index up 3.1% and Taiwan’s Taiex gaining 2.8%. Japan’s Nikkei 225 rose 1.9%, while Australia’s S&P/ASX 200 added 1.5%. China’s CSI 300 lagged, up 0.7%, as concerns over the property sector’s downturn and weak consumer demand persisted.

Traders said the combination of easing inflation pressures and growing optimism over artificial-intelligence-related demand had supported risk appetite, though some warned that a sustained market rebound would depend on further evidence of economic stabilization in the U.S. and China.

The dollar weakened against major peers, with the U.S. Dollar Index down 0.4% on the week, as investors priced in a more dovish Fed stance. U.S. Treasury yields fell, with the 10-year note slipping below 4.2%.

In currency markets, the Japanese yen strengthened 0.3% to 156.80 per dollar, while the offshore yuan was little changed at 7.25 against the greenback. Oil prices edged higher, with Brent crude up 0.5% at $82.30 a barrel, as the softer inflation backdrop reduced concerns over aggressive monetary tightening.

Analysts at Goldman Sachs noted that while the inflation print was encouraging, the path to a Fed rate cut remained data-dependent, with core services inflation still elevated. They added that Asian equities could extend gains if upcoming U.S. jobs data and Chinese economic indicators continue to show improvement.