Fresh Signs of Slowing US Inflation Lead to Asian Stock Sell-off and Tech Rotation on Wall Street

Asian equities took a hit as signs of slowing US inflation raised expectations of rate cuts, prompting a sell-off in big tech stocks on Wall Street. The yen’s volatility added to the uncertainty, with Japanese shares dropping over 1% amid speculation of official intervention.

South Korea’s tech heavyweights dragged down the Kospi Index, while Australian shares bucked the trend and advanced. The Nasdaq 100 saw a 2.2% decline, with major winners like Nvidia Corp. feeling the pressure.

US core consumer prices, excluding energy and food, rose at the slowest pace since 2021, supporting the case for Federal Reserve rate cuts. This sparked a shift towards riskier assets, as money flowed out of the popular big tech sector.

Commenting on the market dynamics, Callie Cox from Ritholtz Wealth Management noted, “The big tech trade is turning on itself, yet the rest of the market is finally stepping in.” This sentiment was echoed by Chris Larkin at E*Trade, who sees Thursday’s “Fed-friendly CPI” as a step closer to a potential rate cut in September.

On Wall Street, Steve Eisman of Neuberger Berman Group predicted a prolonged strength in US megacap technology stocks, emphasizing the importance of owning these large-cap tech companies as AI technology becomes more accessible to consumers.

Looking ahead, economic reports from China, Japan, and India are eagerly anticipated, with data on trade, industrial output, and inflation on the agenda.

As markets absorb the implications of slowing inflation and potential rate cuts, West Texas Intermediate oil prices rose for the third consecutive day, while gold remained steady following a sharp rally on Thursday.

Overall, the shifting market dynamics highlight the impact of economic data on investor sentiment and the continued uncertainty surrounding global equities.