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

(Bloomberg) — 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.

Japanese stocks outperformed the region with equities in Australia and mainland China little changed. Futures contracts for US equities edged lower in Asian trading after the Nasdaq 100 rose 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. climbed 6.6% following a report that the chipmaker was working on an AI deal with Apple Inc.

Yields for Australian government debt jumped and the Australian dollar strengthened on Thursday after data showed more jobs were added to the economy than expected and unemployment unexpectedly fell, in a sign of economic resilience. Treasuries were steady on Thursday after a selloff in the prior session sent yields higher across the curve. 

US consumer price index data released on Wednesday 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. An index of dollar strength fell Thursday, moderating a gain on Wednesday that was helped along by the higher Treasury yields.

“The fact that inflation is not slowing down rapidly reinforces the view that the economy will strengthen from next year onwards, and investors’ appetite for risk has increased,” said Takashi Ito, senior strategist at Nomura Securities.

In other currencies, the won was steady as South Korea’s President Yoon Suk Yeol accused the opposition of trying to paralyze his administration and siding with North Korea in a defiant speech Thursday as the chief of his own party called for his impeachment.

China set a stronger-than-expected yuan fixing on Thursday, extending its support for the currency after it slid on a Reuters report that China is considering FX depreciation next year. 

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 10:37 a.m. Tokyo time
• Nikkei 225 futures (OSE) rose 1.4%
• Japan’s Topix rose 1.2%
• Australia’s S&P/ASX 200 was little changed
• Hong Kong’s Hang Seng was little changed
• The Shanghai Composite fell 0.1%
• Euro Stoxx 50 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.1% to $1.0507
• The Japanese yen rose 0.2% to 152.10 per dollar
• The offshore yuan rose 0.1% to 7.2695 per dollar
• The Australian dollar rose 0.6% to $0.6410

Cryptocurrencies

• Bitcoin fell 1% to $100,586.78
• Ether fell 0.5% to $3,812.21

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 eight basis points to 4.27%

Commodities

• West Texas Intermediate crude fell 0.1% to $70.19 a barrel
• Spot gold fell 0.3% to $2,711.03 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Yasutaka Tamura.

©2024 Bloomberg L.P.