Business Maverick

Business Maverick

Asian stocks extend two-year high before US CPI: markets wrap

Asian stocks extend two-year high before US CPI: markets wrap
A pedestrian walks past the People's Bank of China (PBOC) headquarters in Beijing, China, on Friday, June 7, 2019. (Photo: Qilai Shen/Bloomberg)

Stocks in Asia rose, following a big tech-led rally in US benchmarks, as investors look to key inflation data later on Wednesday for clues on the Federal Reserve’s next steps. 

The MSCI Asia Pacific Index — a gauge for benchmarks in the region — inched higher, extending gains after closing at a two-year high on Tuesday. Equity benchmarks in Japan and Australia advanced while those in mainland China slipped at the open. Hong Kong markets were closed for a holiday. 

Tencent Holdings’s American Depositary Receipts surged after revenue beat estimates in results reported late on Tuesday, while Alibaba Group’s slid after profit plunged, highlighting the growing divergence between China’s twin internet powerhouses. Elsewhere, shares of Hon Hai Precision Industry Co dropped after reporting a weaker-than-expected profit as demand for iPhones remained sluggish in China.

In the run-up to US consumer price index data, the S&P 500 shrugged off Jerome Powell’s signals that interest rates will be higher for longer and a mixed reading on producer inflation. US futures were little changed in early Asia trading.

“Market sentiment hinges on tonight’s US CPI report,” said Kyle Rodda, a senior market analyst at Capital.com in Melbourne. “While promising, if it were to occur and represent a more than three-year low for core CPI, a greater downside surprise would be required to dispel fears about sticky and re-anchored inflation.”

In China, the nation’s central bank extended a key policy loan at the same borrowing cost, signaling concerns that fresh monetary easing may further weaken the yuan. Elsewhere, authorities blasted the Biden administration’s move to increase US tariffs on a wide range of Chinese imports, vowing to take its own action, without giving specifics.  

Investors will also be watching to see if Japan’s 10-year government bond yield hits the highest level in more than a decade, after 20-year yields did so Tuesday. The yen was steady ahead of a report on Thursday that is forecast to show Japan’s gross domestic product shrank at an annualised pace of 1.2% in the three months through March.

In the corporate world, Sony Group Corp.’s shares climbed as investors rewarded its mid-term plan and shareholder return policy after the company announced its quarterly earnings.

Tops estimates

A Bloomberg dollar index was flat as US 10-year Treasury yields were little changed Wednesday after falling five basis points to 4.44% in the previous session, as traders positioned for a sharp drop in yields in the aftermath of the PPI print. 

US producer prices rose in April by more than projected, though key components that feed into the Fed’s preferred inflation gauge were more muted. Several categories in the PPI report that are used to calculate the personal consumption expenditures price index eased. 

“A more granular look suggests the components that feed into PCE inflation sent mixed signals,” said Krishna Guha at Evercore. “This means that the burden largely remains on CPI.”

Underlying US CPI probably moderated in April for the first time in six months, offering some hope that price pressures will start to ease again. Compared with April 2023, the core CPI is projected to rise 3.6%. While the annual increase would be the smallest in three years, it would still be too high to warrant rate cuts.

“Investors are expecting inflation to fall in April,” said Anthony Saglimbene at Ameriprise. “Even if the decline is slight, markets are looking for further evidence that the downward trend in inflation remains intact and, importantly, is not in the process of reversing course higher.”

A survey conducted by 22V Research showed 49% of investors expect the market reaction to the CPI report to be “risk-on” — while only 27% said “risk-off”. 

In commodities, oil advanced Wednesday after an industry report showed shrinking US stockpiles, and traders looked ahead to a report from the International Energy Agency that’ll shed light on market balances into the second half. Gold steadied after rising almost 1% on Tuesday.

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