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Business Maverick

Asia shares advance ahead of key US inflation data: markets wrap

Asia shares advance ahead of key US inflation data: markets wrap
A woman walks past an exchange office with an electronic panel displaying currency exchange rates for US dollar and Euro against Russian ruble in Moscow, Russia, 14 August 2023. (Photo: EPA-EFE / Sergei Ilnitsky)

Shares in Asia rose ahead of US economic data and meetings from major central banks that will give fresh clues about the likelihood of interest-rate cuts next year.

Hong Kong equity gauges rose at the open, while stocks steadied in mainland China, as traders await decisions from a meeting of Chinese economic policymakers. Equity benchmarks also advanced in Japan, South Korea and Australia. That’s after a benign start to the week in the US, where traders sent stocks higher for a third straight day. The dollar weakened slightly while treasury 10-year yields were little changed. 

Tuesday’s consumer price index will give Wall Street a sense of whether the disinflation trend is continuing. The report will be released a day before the last scheduled Federal Reserve decision of 2023, with officials widely expected to hold rates and announce their Summary of Economic Projections. The question is whether the Fed will try to temper policy easing expectations after investors’ aggressive dovish repricing. 

“This could be a monumental week for Asian markets if US CPI data and the Fed re-confirm that the rate hike cycle has ended,” said Charu Chanana, a market strategist at Saxo Markets. “Announcements from China’s CEWC could also be key as market participants are awaiting a push on monetary, fiscal and industrial policies to meet the 2024 growth target.”

Meanwhile, the yen pares losses from its biggest decline in more than a month on Monday that was triggered by a report saying Bank of Japan officials see little need to rush to scrap negative interest rates this month. 

Japan’s producer prices decelerated in November to the slowest in almost three years, supporting the BOJ’s view that inflationary pressure is moderating.

“The USD/JPY has pared back much of its 7 December dip, as bearish positions unwind on views that previous hawkish expectations may have been overdone,” said Jun Rong Yeap, market analyst at IG Asia Pte. “This comes as BOJ officials continue to seek conviction on their wage-growth condition to be confident of meeting ‘sustainable inflation’ for a policy pivot.”

MSCI’s Asia Pacific Index snapped a two-day decline. Tech stocks were the top performers, after gains in US peers drove the Philadelphia Semiconductor Index to its highest close since January 2022. 

US CPI is forecast to be flat at 0% thanks to a drop in energy prices, with monthly core inflation at 0.3%, according to economists tracked by Bloomberg. A survey conducted by 22V Research shows 46% of the investors polled think the market reaction to CPI will be mixed or negligible, 28% are betting on a “risk-off” event and only 26% see a “risk-on” response.

“Short-term inflation expectations have come down sharply on lower energy prices in recent months,” said Anna Wong and Stuart Paul of Bloomberg Economics. “That makes more room for the Fed to consider rate cuts as downside risks for activity and upside inflation risks become more balanced.”

One of Wall Street’s biggest bulls estimates that the S&P 500 will hit 5,200 points next year to set a fresh record.

“We look for 2024 to be a year of transition as markets navigate what we expect will be the Fed’s pivot from a restrictive monetary policy setting to an easier stance,” Oppenheimer Asset Management chief strategist John Stoltzfus said.

Elsewhere, natural gas futures plunged the most in nine months as forecasts shifted warmer for the US into early next year, signalling lacklustre demand as production hits fresh records. Oil ticked higher after falling to near a five-month low with oversupply concerns in focus after OPEC+’s pledges to extend and deepen output cuts failed to halt a slump in prices. Gold was little changed after falling 1.1% on Monday to trade back below $2,000 an ounce.

Bitcoin rose after posting its steepest drop in almost four months as traders moved to lock in profits following a more than 150% rally this year, triggering large liquidations of bullish bets. 

In the corporate world, Oracle Corp. reported disappointing sales on slowing cloud momentum after the closing bell. Japan’s top utility Tokyo Electric Power Co. fell, reversing its recent rally after a 39% surge over the last four days made it the most overbought stock on Nikkei 225 Stock Average. 

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