Asian Stocks Rise After US Inflation Backs Fed Cut: Markets Wrap

Asian stocks rose Thursday after US equities snapped a two-day slide on benign inflation data that supported expectations of a Federal Reserve interest rate cut this month.

Australian and Japanese equities climbed while Hong Kong futures were steady. The S&P 500 rose 0.8% and the Nasdaq 100 advanced 1.9% to a new high Wednesday, with the strong showing for tech pushing Amazon.com Inc and Meta Platforms Inc. to fresh records. Broadcom Inc. rose 6.6% following a report that the chipmaker was working on an AI deal with Apple Inc.

Treasuries were steady in early Asian trading after a selloff in the prior session sent yields higher across the curve. Yields for Australian and New Zealand government debt edged higher Thursday.

The moves followed US consumer price index data that came in line with expectations, cementing forecasts for the Fed to cut rates by 25 basis points later in December. Swaps traders have now virtually priced in such a move, compared with a 75% chance a week ago.

The inflation data, “gives the Federal Reserve the green light for a 25 basis point rate cut at the December meeting, as it helps to confirm that we are still making progress on inflation even though it remains sticky,” according to Skyler Weinand, chief investment officer at Regan Capital.

In Asia, economic reports set for release Thursday include labor market data for Australia, and inflation and industrial production for India.

An index of dollar strength fell Thursday, moderating a gain on Wednesday that was helped along by the higher Treasury yields. China’s yuan slid the most in a week following a report that Beijing is considering allowing the currency to weaken next year in response to the threat of a trade war with the US.

Meanwhile, China’s two-day Central Economic Work Conference is expected to map out policies for next year, following stimulus signals from top leaders. 

Officials must focus on, “how will they deliver fiscal stimulus more directly to consumers so the economy can more directly shift to consumption-led rather than investment led,” Amy Xie Patrick, head of income strategies for Pendal Group, said on Bloomberg Television.

The yen strengthened against the greenback, paring a decline on Wednesday. Bank of Japan officials see little cost to waiting before raising interest rates, while still being open to a hike next week depending on data and market developments, according to people familiar with the matter.

Hikes, Cuts

Brazil’s central bank increased the benchmark interest rate by a full percentage point to 12.25% late on Wednesday, and promised to deliver two hikes of the same size in the next two meetings, as it rushes to recover investor confidence and tame inflation expectations.

The Canadian dollar advanced after hovering near a four and a half-year low once policymakers signaled they were ready to slow down on monetary easing. The Bank of Canada lowered its rate by half a percentage Wednesday, its second straight outsized cut. 

The Swiss National Bank and European Central Bank are also expected to reduce interest rates Thursday.

In commodities, crude futures rose after a Bloomberg News report that the Biden administration is considering new sanctions on Russia’s oil trade, a move that could tighten the market. The White House warned that Russia may fire another intermediate-range ballistic missile at Ukraine, after what Moscow said were strikes on its territory with US-supplied weapons. 

Wall Street’s fear gauge, the VIX, fell below 14 following the CPI data, an indication the market is expecting calm in the near-term. Stocks and long bonds stand to benefit as fears of a higher inflation print evaporate, according to ClearBridge Investments’ Jeff Schulze.

“The debate for the FOMC next week between cut or skip is over,” Schulze said. “This inflation print should be risk-asset friendly and provide a tailwind to equity markets as we move through one of the strongest seasonal periods of the year.”

Key events this week:

• ECB rate decision, Thursday

• US initial jobless claims, PPI, Thursday

• Eurozone industrial production, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1% as of 9:16 a.m. Tokyo time

• Hang Seng futures were little changed

• Japan’s Topix rose 1.1%

• Australia’s S&P/ASX 200 rose 0.3%

• Euro Stoxx 50 futures rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro was little changed at $1.0506

• The Japanese yen rose 0.2% to 152.13 per dollar

• The offshore yuan was little changed at 7.2731 per dollar

• The Australian dollar rose 0.2% to $0.6382

Cryptocurrencies

• Bitcoin fell 0.5% to $101,103.18

• Ether fell 0.1% to $3,828.25

Bonds

• The yield on 10-year Treasuries was little changed at 4.27%

• Japan’s 10-year yield advanced one basis point to 1.075%

• Australia’s 10-year yield advanced four basis points to 4.22%

Commodities

• West Texas Intermediate crude was little changed

• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.