Japan’s Topix rallied about 1% as it extended its three-decade high. Australia’s benchmark gauge also advanced. Shares in Hong Kong and Shanghai fluctuated, reflecting debate over how much stimulus can do to truly reinvigorate the Chinese economy.

The gains in Asia also follow the S&P 500’s fourth consecutive increase — its longest winning run since early April. It is approaching the 4,400 mark, a level it hasn’t traded at for more than a year.

Global investors embraced a slowdown in US inflation data Tuesday as confirmation that the Fed will hold rates in the 5%-5.25% range later Wednesday. Swap traders put the odds of an increase at only 10%, while still seeing the potential for a July move.

Wall Street’s “fear gauge” — the Cboe Volatility Index — dropped back below 15, versus an average of 23 for the past year, underscoring support for risk assets. 

The upbeat response to the Fed’s likely pause on Wednesday was coupled with a shift in views for outlook later in the year. This was reflected in short-term Treasury yields surging on Tuesday to the highest levels since March amid a decline in expectations that the policymakers will cut interest rates in 2023. Two-year rates, which are more sensitive to imminent policy moves, climbed nine basis points to 4.67%. 

Treasury yields fell slightly on Wednesday while yields in Australia and New Zealand followed the moves higher from the previous US session.

An index of dollar strength was little changed amid subdued trading in currency markets.

The Fed’s pause will be conditional as it assesses data and investors will need to remain vigilant, said Kristina Hooper, chief global market strategist at Invesco.

“What we are seeing right now is an imperfect disinflationary environment,” she said on Bloomberg Television. “Having that sword of Damocles hanging over markets is important, suggesting that another rate hike could happen at any meeting.” 

Both the consumer price index and the core CPI — which excludes food and energy — decelerated on an annual basis, highlighting inflation’s descent since peaking last year. At 4%, year-over-year inflation is now at its lowest level since March 2021. That said, a key gauge of prices closely watched by the Fed continued to rise at a concerning pace.

Meanwhile in Asia, the People’s Bank of China is projected to cut its medium-term lending facility rate on Thursday, while the Bank of Japan is expected to keep its ultra-easy policy unchanged on Friday. 

Elsewhere in markets, oil edged lower on Wednesday after rebounding by more than 3% on Tuesday from a three-month low. 

Gold and Bitcoin were slightly higher. DM