Kospi surges 7% after surprise US inflation drop

South Korea’s Kospi rose 7% on Wednesday after the US consumer price index fell 0.4% in June, the largest monthly decline since April 2020. The drop reduced market expectations of a Federal Reserve rate increase in July and coincided with gains across Asian markets.

US inflation fell largely due to a sharp decline in energy costs. Monthly core prices were unchanged from May and the annual core core inflation rate slowed to 2.6% from 2.9%.

Markets priced roughly a 16% chance of a July Fed rate increase. Two-year US Treasury yields fell 11 basis points to 4.19%, reversing part of the prior session’s rise to a 17-month high.

Wall Street finished higher as strong second-quarter results from major US banks supported the S&P 500 and the Nasdaq. IBM shares plunged about 25% after warning that second-quarter revenue and adjusted profit would miss analyst estimates, highlighting a split between demand for traditional software and demand for AI infrastructure such as servers and memory.

In Asia, Japan’s Nikkei 225 rose about 1% and MSCI’s gauge of Asia-Pacific shares outside Japan gained 2.4%. The Kospi’s outsized gain followed volatile moves in semiconductor stocks ahead of ASML’s second-quarter results, which investors expect to provide a read on demand for advanced chipmaking equipment.

China’s economy grew 4.3% year-on-year in the second quarter, below forecasts. June retail sales showed signs of recovery, but weak domestic demand continued to weigh on the broader recovery. The onshore yuan strengthened to a one-month high while mainland equities lagged the regional rally.

Brent crude steadied near $85.80 a barrel after almost a 13% rise earlier in the week. A proposed 20% charge on ships using the Strait of Hormuz was dropped by US authorities, but a US blockade of Iranian ports and renewed military strikes kept a geopolitical risk premium in energy markets.

Investors are awaiting a stream of corporate earnings and economic indicators, with results from technology and chip-related companies expected to influence market direction and corporate budget decisions related to AI infrastructure spending.