Business Maverick

Business Maverick

Asian stocks advance as in-line CPI lifts mood: markets wrap

Asian stocks advance as in-line CPI lifts mood: markets wrap
The European Central Bank headquarters in Frankfurt, Germany, on June 15. (Photo: Alex Kraus/Bloomberg)

Asian stocks rose on cautious optimism the Federal Reserve may pause rate hikes following the US inflation report that was in line with estimates. 

Equities in Hong Kong, Japan and South Korea gained while those in mainland China and Australia edged higher, as a benchmark index for the region snapped a two-day loss. Futures contracts for US equities also rose during Asian trading.

Australian dollar and bonds held an earlier gain after the nation’s unemployment rate was steady at 3.7% in August, as expected. Meanwhile, Japanese bond traders will be closely monitoring a sale of 20-year securities amid speculation the Bank of Japan may take steps to normalise policy.

Two-year Treasury yields remained below 5% in Asia trading and the greenback fell against its major peers, as traders prepared themselves for upcoming US retail sales and producer price data. The core consumer price index, which excludes food and energy costs, increased 4.3% from a year ago — in line with estimates and marking the smallest advance in nearly two years. 

Swaps tied to the next two Federal Open Market Committee meetings continued to price in little chance of a hike next week — and about 50% odds of one in November.

“Asia has some clear air to reclaim some of the week’s losses,” said Kyle Rodda, a senior analyst at Capital.com in Melbourne. “US inflation offered up more questions than answers, but it’s a volatility event out of the way, so that’s supportive of risk assets at the margins – the proverbial can has been kicked down the road just a little.”

The S&P 500 was little changed on Wednesday while the Dow Jones Industrial Average underperformed. American Airlines Group Inc. led US stock losses after cutting its earnings outlook amid a jump in jet fuel prices. Most megacaps rose, with the chiefs of five of the 10 biggest US companies appearing at a closed-door Senate meeting to shape how artificial intelligence is regulated. Apple Inc. fell as China flagged security problems with iPhones.

In Asia, distressed Chinese developer Country Garden Holdings Co. is approaching another deadline for voting by bondholders on its request to extend repayment, after winning such support on 10.3 billion yuan ($1.4-billion) of other local notes. 

Markets will also look toward the European Central Bank policy meeting and upgraded inflation forecasts Thursday as evidence builds Europe is facing persistent cost pressures that’s been made worse by soaring energy prices. Money markets are pricing in a two-thirds chance the ECB raises interest rates by a quarter of a percentage point, a rapid shift from earlier this month where traders were firmly in the camp rates would be held steady.  

“It will be a close decision,” said Imre Speizer, a strategist at Westpac Banking Corp. in Auckland. “Inflation persistence is likely to feature in the ECB’s upgraded projections” with core prices more stubborn, he wrote in a note to clients. 

In commodities, oil trade near the highest since November after the International Energy Agency added to warnings of a supply shortfall, while gold traded edged higher after losses in the last two sessions.

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