Asian Markets Poised to Rise Amid Easing U.S. Inflation and Rate Cut Prospects

Asian equities are expected to rise on Monday, following a moderation in U.S. inflation that bolsters the outlook for Federal Reserve rate cuts this year. Futures for Japan's Nikkei 225 and Australia's S&P/ASX 200 indicate gains at the start of a week influenced by the Lunar New Year holiday, which will see mainland China's markets closed all week and Hong Kong's reopening on Friday. U.S. markets are closed Monday for Presidents' Day.

The U.S. Consumer Price Index (CPI) rose 2.4% year-over-year in January, down from 2.7% in December, marking the slowest inflation pace since May 2025. This deceleration was driven by lower energy costs, with gasoline prices falling 7.5% annually. Core CPI, excluding food and energy, increased by 2.5% over the past 12 months, the lowest level since March 2021.

In response, U.S. Treasury yields declined, with the 10-year and policy-sensitive two-year yields dropping five basis points on Friday. Traders are now fully pricing in a Fed rate cut in July, with a strong likelihood of a move in June. Australian yields fell early Monday.

Neil Birrell, Chief Investment Officer at Premier Miton Investors, commented, "Overall, this won't change Fed policy, but it will ease the path towards a cut in rates sooner rather than later."

In Asia, upcoming data releases include Thailand's gross domestic product, Japan's industrial production, and India's wholesale prices, trade, and unemployment figures. In China, President Xi Jinping emphasized leveraging the country's large market to anchor economic growth around domestic demand.

Investors are also monitoring geopolitical developments. U.S. Secretary of State Marco Rubio and Japanese Foreign Minister Toshimitsu Motegi reaffirmed their commitment to deepen bilateral ties in a meeting Saturday, as Japan faces escalating tensions with China.

Federal Reserve Bank of Chicago President Austan Goolsbee noted that while the central bank can cut rates further if inflation is on track to reach its 2% target, "Right now we are not on a path back to 2%. We're kind of stuck at 3%, and that's not acceptable."