(Bloomberg) — Asian shares drifted higher Thursday after US inflation data supported the case for another Federal Reserve rate cut next month.
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Stocks in Japan and Australia climbed, while futures for Hong Kong fell as a gauge of US-listed Chinese companies declined Wednesday. US equities were little changed as the post-election rally appeared to stall. The S&P 500 was flat and the tech-heavy Nasdaq 100 dropped 0.2%.
US consumer price data was in line with expectations on a headline basis, although the annualized three-month core rate picked up. Overall, the numbers were supportive of a potential Fed cut in mid-December with swaps traders increasing the likelihood to around 80% from about 56% earlier Wednesday.
The nuanced data led short-end bond yields to fall, with the two-year yield dropping five basis points to 4.29%. The 10-year rose two basis points to the highest level since July, while the 30-year climbed seven basis points to the highest since May. A gauge of the dollar advanced Wednesday as the greenback resumed its strengthening against major currencies.
“A December cut is still in the cards,” said Seema Shah at Principal Asset Management. “A hotter-than-expected inflation number could have convinced the Fed to stand pat at its next meeting.”
The yen stabilized early Thursday after slumping 0.6% Wednesday, its third session of weakening, to hit 155 per dollar for the first time since July. The drop has taken the yen near levels when Japanese authorities last intervened to prop up its currency, with the nation’s top foreign exchange official warning about the one-sided, sudden moves.
China, which recently unveiled plans to support its ailing economy, got more than $40 billion of bids for its first dollar bond issuance since 2021.
Hong Kong’s stock exchange will keep its markets open despite signs of severe weather.
Elsewhere, Bitcoin notched another record high, climbing above $93,000 for the first time, with traders exuberant over President-elect Donald Trump’s rhetorical support for crypto. The cryptocurrency was trading around $90,000 in early Asian trading.
In Asia, data set for release includes Australian unemployment, South Korean money supply and Thai consumer confidence.
Investors will also be looking for any market reaction to better-than-anticipated profits for Tencent Holdings Ltd. The Chinese tech giant also described green shoots in the world’s second-largest economy in the wake of stimulus measures announced by Beijing in the past few weeks. Retail and home sales data due Friday is expected to show an uptick in momentum.
Inflation Battle
Despite the market relief with Wednesday’s CPI report, the latest figures also underscore the slow and frustrating nature of the battle against inflation, which has often moved sideways — sometimes for months at a time — on its broader path down.
“The in-line CPI print shows that while substantial progress has been made in the fight against elevated inflation, the ‘last mile’ is proving more challenging,” said Josh Jamner at ClearBridge Investments. “Underlying inflationary pressures remain on a pace that is modestly above the Fed’s 2% target. With inflation holding steady, the market narrative should not see a significant shift as a result of today’s data.”
Several Fed officials reiterated their deep uncertainty over how far the central bank will need to lower interest rates, highlighting the difficulty policymakers face in trying to determine the right setting to keep the economy on an even keel.
Traders will now shift their focus to US PPI data due later Thursday which is expected to show headline and core producer prices for October rose year-over-year.
At Citigroup Inc., economists maintained their view that the Fed will cut rates by 50 basis points in December after the CPI data.
“While details remain volatile and not quite ‘normal,’ easing wage pressures, falling short-term inflation expectations, and high rates continuing to weigh on housing demand and prices should leave Fed officials comfortable that the path of inflation is slowing,” wrote Citi’s Veronica Clark and Andrew Hollenhorst.
In other commodities, oil retreated after a Wednesday gain. Gold edged lower for a fifth session.
Key events this week:
Eurozone GDP, Thursday
US PPI, jobless claims, Thursday
Fed speakers include Jerome Powell, John Williams and Adriana Kugler, Thursday
China retail sales, industrial production, Friday
US retail sales, Empire manufacturing, industrial production, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 8:22 a.m. Tokyo time
Hang Seng futures fell 1%
Australia’s S&P/ASX 200 rose 0.4%
Currencies
The Bloomberg Dollar Spot Index rose 0.4%
The euro was little changed at $1.0565
The Japanese yen was little changed at 155.37 per dollar
The offshore yuan was little changed at 7.2415 per dollar
The Australian dollar rose 0.1% to $0.6494
Cryptocurrencies
Bitcoin rose 1.6% to $90,008.25
Ether rose 1% to $3,184.66
Bonds
Commodities
West Texas Intermediate crude fell 0.5% to $68.09 a barrel
Spot gold rose 0.2% to $2,579.16 an ounce
This story was produced with the assistance of Bloomberg Automation.
