Asia joins the party as Wall Street's inflation calm fuels risk appetite

Asian equities are poised to ride the Friday green wave, catching the afterglow of Wall Street’s latest melt-up. Futures in Tokyo, Sydney, and Hong Kong are flashing higher, lifted by a potent mix of cooler U.S. inflation, solid Treasury demand that’s eased fiscal nerves, and a market eager to front-run a Fed pivot—well before Powell even blinks.

Stateside, the S&P 500 climbed 0.4% Thursday, now brushing up against all-time highs and closing in on a rare third straight weekly gain—something it hasn’t pulled off since December. Treasury yields drifted lower as the producer price index came in cooler than expected, rising just 0.1% versus the 0.2% consensus. Pair that with a strong 30-year bond auction, and suddenly fears of “deficit dread” start to fade.

The bond market is whispering what the Fed hasn’t yet said: the ground is shifting under Powell’s feet. While the street isn’t expecting a rate cut next week, traders are already thinking in terms of a possible summer rate cut surprise, especially if tariffs are just leverage, not law.

Which brings us to the wild card—Trump’s trade war redux. The VAT-style tariff math may be settling lower, but July 8–9 still looms like a macro fog bank on the horizon. For now, markets are betting the levies are leverage—not legacy—and that Trump’s playing for negotiating headlines, not economic rewiring. If that view holds, a fall rate cut is practically pencilled in, and the odds of a July or August move start creeping into frame.

But if the script flips—if this becomes about reshaping the global supply chain via a heavy-handed tariff regime in Trump’s image—then all bets are off. That’s not just a tariff tweak; that’s a structural regime shift. And in that scenario, the Fed’s calculus gets a lot murkier.

Until then, Powell won’t blink without cover. He made it crystal clear at the last FOMC presser—policy is in a “good place,” and the Fed is “well-positioned” to absorb incoming data. He said it eight times, in case you missed it. Next week, we’ll see if he starts to walk that back. With April PCE inflation at 2.1%, CPI cooling, labour softening, and red-hot inflation expectations cooling off, the data is teeing up a rate cut story whether the Fed wants to write it or not.

Yet the market remains cautious. Despite the softer tone in inflation and economic activity, rate futures aren’t fully pricing in a quarter-point cut until October. Maybe it’s residual scar tissue from premature pivot bets. Maybe it’s Powell’s poker face.

Either way, next week’s meeting and the updated SEP projections will be a key moment. Powell’s press conference will get combed for even the slightest twitch in tone—a blink, a pause, a recalibration. If there’s any shift, it’ll be subtle and couched in “data-dependence,” but the setup is there for a dovish swerve.

Asia is tapping into the risk-on bleed, bonds are dancing to a disinflation beat, and the dollar is on the defensive. However, the real fireworks may come after the FOMC, when Powell has to reconcile a slowing economy with a White House pushing policies and tariffs as trade deal weapons. Until then, markets may surf the eventual rate cut narrative—keep one eye on the July deadline and the other on the Fed's poker table.