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Business Maverick

Asian stocks, currencies rally after US CPI print: markets wrap

Asian stocks, currencies rally after US CPI print: markets wrap
Shoppers on Powell Street in San Francisco, California, US, on Tuesday, 29 November 2022.

Asian shares and currencies rose, following gains on Wall Street as the latest US inflation data reinforced bets for Federal Reserve policy easing.

Stocks climbed in Australia, South Korea and mainland China, while those in Hong Kong also advanced after returning from a holiday. Japanese equities pared earlier gains. Futures contracts for the S&P 500 and Nasdaq 100 also edged higher after both benchmarks scored fresh highs on Wednesday.

The Bloomberg dollar index fell to a one-month low as the greenback weakened against all its G10 peers. Asian currencies also rallied, led by the Korean won. The yen traded at the highest level in over a week against the dollar, adding to Wednesday’s 1% advance and shrugging off data showing the Japanese economy contracted in the first quarter.

The Australian dollar erased gains after the country’s jobless rate for April missed the median estimate in a Bloomberg survey.

Treasuries extended gains from the prior session that pushed yields lower across the curve. The benchmark 10-year rate fell 10 basis points on Wednesday, while the policy-sensitive two-year yield dropped nine basis points as investors brought forward interest rate cut expectations. The swaps market is now predicting two reductions this year, up from one earlier in the year.

The drop in US yields and the dollar “will be very much well received for the risk environment across the region, with clarity on US inflation risks allowing sentiments to bask in optimism” for now, said Jun Rong Yeap, market strategist at IG Asia. “The overall data were perceived to offer room for the Fed to consider earlier rate cuts, with market expectations leaning more firmly for easing to kick start in September this year.”

The so-called US core CPI — which excludes food and energy costs — climbed 0.3% from March, in line with consensus expectations but snapping a streak of three above-forecast readings which spurred concern that inflation was becoming entrenched. The year-over-year measure cooled to the slowest pace in three years.

The latest inflation report may offer US legislators hope that inflation is resuming its downward trend, which would help pave the way for rate cuts. Separate retail sales data indicated some softening of the resilient consumer demand that’s been bolstering the economy.

“The soft landing is continuing to play out,” said Jeffrey Schulze, head of economic and market strategy at ClearBridge Investments. “The latest print should begin to shift the narrative back towards ‘when’ the Fed will cut in 2024 rather than ‘if’,” he said.

The next CPI figures will be released exactly on the same day when the Fed meets to decide on interest rates — on 12 June.

Fed Bank of Minneapolis president Neel Kashkari repeated the central bank likely needs to keep rates at the current level for “a while longer”, and questioned how much they’re restraining the US economy.

In corporate news, Boeing Co. faces possible criminal prosecution after the US Justice Department found the company violated a deferred-prosecution agreement tied to two fatal crashes half a decade ago. Walt Disney CEO Bob Iger said marketing expenses at the flagship Disney+ streaming service are too high and will be cut.

Back in Asia, shares of Chinese developers jumped on optimism that Beijing will provide policy support for the purchase of unsold homes from distressed builders. A Bloomberg gauge tracking the sector rose as much as 10.7% to the highest level since December 2023. 

Oil edged higher on a bigger-than-expected draw in commercial crude stockpiles. Gold prices also climbed early on Thursday, placing the precious metal on pace for its third daily advance.

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