Asian stocks rally on U.S. inflation miss, Nikkei at 33-year peaks

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Data on Friday had shown that the Fed’s preferred inflation gauge fell more than expected in May, triggering a rally across most risk-driven assets that spilled over into Asian trade this week.

But whether the rally will keep its momentum remains to be seen, ahead of a slew of economic readings and central bank signals this week. Economic readings on Monday also painted a mixed picture of Asia’s largest economies.

Japan’s Nikkei 225 index jumped 1.4% and the broader TOPIX added 1.3%, with both indexes trading close to 33-year highs. 

A Bank of Japan survey showed that business sentiment in the country improved through the second quarter, indicating that the economy was recovering as more firms vowed to increase capital expenditure.

The reading factored into increasing optimism over Japan’s economic prospects this year, which, coupled with a dovish BOJ, have spurred sharp gains in Japanese stocks over the past two months.

But a separate survey also reiterated that Japanese factory activity shrank in June, indicating that the country’s biggest economic drivers were still under pressure.

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose about 1.2% each, as a private survey showed that China’s manufacturing sector grew more than expected in June. Hong Kong’s Hang Seng index added 1.9% on strength in locally listed Chinese stocks.  

But the reading slowed from the prior month, indicating that some spots of resilience in the Chinese economy may be losing their strength. 

Monday’s reading also came after an official survey showed last week that China’s factory sector shrank for a third straight month in June. 

Broader Asian markets advanced on Monday, with a slew of regional and U.S. economic cues due this week.

Australia’s ASX 200 added 0.5%, lagging its regional peers ahead of a Reserve Bank meeting on Tuesday, which analysts expect to result in a 25 basis point rate hike. The Australian manufacturing sector also shrank in June, data showed on Monday.

South Korea’s KOSPI added 1.4%, while the Taiwan Weighted index rose 0.9%.

More cues on U.S. monetary policy remained in focus for the week, ahead of the minutes of the Fed’s June meeting. Nonfarm payrolls for June are also due this Friday.