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International Finance

Asia stocks rise on US inflation bets; yen rallies: markets wrap

Asia stocks rise on US inflation bets; yen rallies: markets wrap
An electronic screen displays the stock figures for companies including Tencent Holdings Meituan and Alibaba Group in Hong Kong, China, on Tuesday, 15 March 2022. (Photo: Paul Yeung/Bloomberg)

Asian equities followed Wall Street higher on Thursday as wagers for a further softening of US inflation buoyed appetite for risk taking in global markets. 

An index of the region’s stocks rose 0.8%, its ninth advance in 10 days, and headed for the highest level in about five months. Australian and New Zealand bond prices climbed as Treasuries held gains from the US session. 

The yen rallied on a report that the Bank of Japan would look into the side effects of its ultra-loose policy. The yield on the nation’s benchmark 10-year bonds sat hard against the BOJ’s 0.5% ceiling, as traders remain wary of another shift from the central bank after governor Haruhiko Kuroda took them by surprise in December when he doubled the amount yields could climb.

A gauge of dollar strength extended its small decline from Wednesday as investors looked beyond the drumbeat of hawkish comments from Federal Reserve officials.

Traders also appear to be downplaying a potentially miserable stretch of earnings and the spectre of a recession as they focus on the upcoming US consumer price index. 

CPI will be scrutinised top to bottom, with the big focus on core inflation – which excludes food and energy and is seen as a better indicator than the headline measure. The projected 5.7% increase would be well above the Fed’s goal, helping explain its intention of keeping rates higher for longer. But the year-over-year price growth would also show moderation.

“The last two months have shown that big swings in US CPI can spark significant volatility in the equity markets, given the large amounts of hedging flows and short-term options covering,” Saxo Capital Markets strategists including Charu Chanana wrote in a note. “With a big focus on CPI numbers again this week, similar volatility cannot be ruled out.”

The technology sector, one of the most-beaten down groups during the Fed’s tightening campaign, led gains among US shares. The open of trading on Thursday saw futures for the S&P 500 and Nasdaq 100 edge lower.

Inflation data for China showed factory-gate prices falling more than expected in December and consumer prices ticking up as the end of Covid Zero snarled manufacturing operations but eliminated mobility curbs on people. The offshore yuan fluctuated while remaining near Wednesday’s closing level.

While Chinese assets have been top performers globally in recent months, many large foreign investors are wary of trusting the government given the regulatory shocks of 2022.

Meanwhile, Fed Bank of Boston president Susan Collins said she’s leaning toward supporting a quarter-point hike at the Fed’s next meeting ending on 1 February. Downshifting to a smaller move would give officials more time to see how their actions are affecting the economy, she told The New York Times.

Closely followed strategist Edward Yardeni, who saw resilience in the US economy even as recession worries grew last year, remains sanguine on where global financial assets — including US stocks — are headed. 

The Pacific Investment Management Co said that while a recession could further challenge riskier assets like stocks, it continues  “to see a strong case for investing in bonds, after yields reset higher in 2022 and with an economic downturn looking likely in 2023”.

Elsewhere in markets, gold stayed in a holding pattern ahead of the US inflation data, which could determine whether its two-month uptrend continues. 

Oil climbed for a sixth session ahead of key US inflation data as China’s crude buying ramps up before the Lunar New Year holidays. BM/DM

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