The US consumer price index fell 0.4% in June, its first monthly decline since the pandemic, pulling the annual rate down to 3.5% from May’s three-year high of 4.2%. The reading, well below consensus forecasts, triggered an immediate repricing of Federal Reserve rate expectations and sent Asian equity markets sharply higher on Wednesday.

Two-year Treasury yields dropped 11 basis points to 4.19%, retreating from a 17-month peak, while the 10-year yield eased to 4.58%. Market pricing for a July rate hike halved to roughly 16%, and the dollar weakened, lifting the euro above $1.14. The data provided a powerful tailwind for rate-sensitive technology stocks, which had suffered a bruising sell-off in recent weeks on valuation concerns. Seoul’s Kospi index surged as much as 7%, led by a double-digit rebound in chipmaker SK hynix, while Tokyo’s Nikkei 225 rose 1.5% and Hong Kong’s Hang Seng added 1.4%.

The rally was tempered, however, by a renewed escalation in the US-Iran conflict. President Donald Trump reimposed a naval blockade on Iranian ports and launched fresh strikes, pushing Brent crude above $85.50 a barrel—a gain of more than 10% since hostilities flared last week. The oil surge weighed on European bourses, where the Stoxx 600 slipped 0.05% and Frankfurt’s DAX fell 0.8%, as energy-cost fears offset strong results from chip-equipment giant ASML, which raised its 2026 forecasts on AI-driven demand. In China, data showing second-quarter growth slowed to 4.3% annualised, missing expectations, left the Shanghai Composite marginally lower, though a rebound in June retail sales offered some encouragement.

In Washington, Federal Reserve Chair Kevin Warsh cautioned lawmakers that a single benign inflation print was insufficient to declare victory, stressing that officials have ‘no tolerance’ for stubbornly high prices. His further testimony on Wednesday, along with US producer price data and the Fed’s Beige Book, will be scrutinised for clues on the policy path. Earnings from Morgan Stanley, BlackRock and Johnson & Johnson are also due, as markets assess whether corporate results can sustain elevated equity valuations amid lingering geopolitical and inflation risks.