Asian stocks gain, Aussie rises after CPI beat: markets wrap

Japanese, South Korean and Taiwanese equity gauges rose, while mainland Chinese and Australian indexes fell. US futures steadied in Asian trading after Nvidia shares rebounded on Tuesday, helping boost the S&P 500. 

US consumer confidence eased on a more muted outlook for business conditions, the job market and incomes. Fed Governor Michelle Bowman said she sees a number of upside risks to the inflation outlook. Her colleague Lisa Cook said it will be appropriate to reduce rates “at some point,” adding that she expects inflation to improve gradually this year. The dollar nudged higher on Wednesday.

Australia’s dollar rose after the country recorded faster-than-expected inflation in May, suggesting price pressures remain stubbornly strong and bolstering the case for the Reserve Bank to resume raising interest rates. The yen lingered just below the psychologically important level of 160 against the greenback, a breach of which will likely boost intervention concern. 

“There’s limited event risk for the broader region today,” said Kyle Rodda, a market analyst at Capital.com. “However, the yen remains within touching distance of 160 and levels that Japanese authorities intervened in the market.”

China loosened its grip on the yuan as the currency traded close to the weak end of its fixed daily trading band. The outlook for China’s exports is set to improve, buttressing growth in the world’s second-biggest economy even as consumer spending slows, according to a survey by Bloomberg. The yuan is trading near its lowest against the dollar since November. 

In Japan, the central bank is expected to raise its interest rate in July in addition to unveiling a roadmap for its path toward quantitative tightening, according to one-third of economists in a separate survey by Bloomberg. The next big pain point for the yen — and a potential trigger for intervention from Japan — may emerge from a readout on the Fed’s favoured US inflation gauge on Friday, according to traders. 

“Nailing down the details of a cut in bond buying probably won’t be a constraint for a July hike,” Ayako Fujita, chief Japan economist at JPMorgan Securities, wrote in response to the survey. “The cost of postponing the adjustment of excessive monetary easing is rising with the emergence of upside inflation risks.”

Elsewhere in Asia, HSBC lifted its view on South Korean stocks to overweight from neutral, citing “ample growth opportunities in the memory sector and excitement around the ‘Value-Up’ program.”

Extended rally

In the US session, Nvidia climbed roughly 7% after a $430-billion rout. In late trading, FedEx — a barometer of economic growth — jumped about 15% on a bullish forecast. In other corporate news, Rivian Automotive surged as Volkswagen AG will invest $5-billion to form a joint venture with the electric-vehicle maker. 

Investors are likely to keep piling into US stocks at the sign of any pullback as the Fed edges closer to reducing interest rates, according to Societe Generale SA, which anticipates the easing cycle will begin early next year.

“We believe the bull market we are in isn’t going to be derailed until either we go into recession or the Fed changes interest-rate policy from potential cuts to actual hikes,” said Chris Zaccarelli at Independent Advisor Alliance. “Expect volatility between now and the end of the year, but don’t expect the bull market to end without a change in the economy or Fed posture.”

Nvidia’s recent selloff isn’t reflective of a worsening outlook for tech or the broader market, as other demand signals are positive, according to UBS.

“Nvidia’s correction shouldn’t be mistaken as a warning signal on either the structural investment case for AI or the broader equity outlook,” wrote Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

Elsewhere, oil held a decline after an industry report signaled a small build in US crude inventories ahead of official government data.