Risk sentiment improved overnight as cooler US inflation data — June CPI down 0.4% MoM and PPI printing a deflationary -0.3% MoM — prompted markets to pare rate-hike expectations, lifting Wall Street modestly with the S&P 500 closing +0.38% at 7,572 and the VIX falling 5% to 15.67. Fed Chair Warsh, testifying before Congress, reiterated that the recent inflation surge would become 'a thing of the past' while stopping short of signalling the July FOMC outcome, maintaining the cautious tone echoed by ECB President Lagarde and BoE Governor Bailey at the Sintra central banking forum. Geopolitical risk eased further following reports of a US-Iran memorandum of understanding reopening the Strait of Hormuz, providing a modest tailwind to risk assets while capping Brent crude near $85.37/bbl. Goldman Sachs surging ~9% on a strong Q2 earnings beat and BlackRock also beating consensus added a constructive earnings-season narrative to the macro relief rally.
For Asia-Pacific markets, the combination of softer US yields — the 2-year Treasury fell 8bp to 4.18% and the 10-year dropped 4bp to 4.58% — and improving risk appetite translated directly into strong regional performance, with the Nikkei 225 gaining 0.74%, the SSE surging 1.36%, KOSPI up 0.73%, and the HKEX advancing 0.52%. The AUD strengthened 0.47% to 0.7009 against the USD, reflecting both the commodity bid and broader risk-on flows, while iron ore held near $98.92/t after China's June activity data beat forecasts despite the Q2 GDP miss of 4.3% versus the 4.5% consensus. The ASX 200 closed flat on Wednesday at 8,808.5, but the improved global backdrop and firmer AUD, copper, and iron ore prices set up a constructive open for Thursday, particularly for resources and energy names. Fed Chair Warsh's Congressional testimony — which began at midnight AEST — remains the live policy event for today's session.