(Bloomberg) — Asian shares drifted higher Thursday after U.S. inflation data supported the case for another Federal Reserve rate cut next month.
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Stocks in Japan and Australia rose while Hong Kong futures fell after a gauge for US-listed Chinese companies fell on Wednesday. US stocks were little changed as the post-election rally appeared to stall. The S&P 500 was flat and the tech-heavy Nasdaq 100 fell 0.2%.
US consumer price data was broadly in line with expectations, although three-month annualized core interest rates rose. Overall, the data was supportive of a possible Fed rate cut in mid-December, with swap traders raising the probability to about 80%, up from about 56% earlier Wednesday.
The nuanced figures caused short-term bond yields to fall, with the two-year yield falling by five basis points to 4.29%. The 10-year yield rose two basis points to the highest level since July, while the 30-year yield rose seven basis points to the highest level since May. A gauge for the greenback rose on Wednesday as the greenback resumed its strengthening against major currencies.
“A reduction for December is still planned,” says Seema Shah of Principal Asset Management. “A higher-than-expected inflation rate could have convinced the Fed to hold firm at its next meeting.”
The yen stabilized early Thursday after falling 0.6% Wednesday, its third session of weakening, reaching 155 per dollar for the first time since July. The decline has left the yen near levels at which Japanese authorities last intervened to support the currency, with the country’s top currency official warning against the one-sided, sudden moves.
China, which recently unveiled plans to shore up its ailing economy, received more than $40 billion in bids for its first dollar bond issuance since 2021.
The Hong Kong stock exchange will keep its markets open despite signs of severe weather.
Elsewhere, Bitcoin hit another record high, climbing above $93,000 for the first time, with traders exuberant over newly elected President Donald Trump’s rhetorical support for crypto. The cryptocurrency was trading around $90,000 in early Asian trading.
In Asia, the dataset for publication includes Australian unemployment, South Korean money supply and Thai consumer confidence.
Investors will also be watching for market reaction to better-than-expected earnings for Tencent Holdings Ltd. The Chinese tech giant also described green shoots in the world’s second-largest economy in the wake of the stimulus measures announced by Beijing in recent weeks. . Retail and home sales data due Friday are expected to show a pick-up in momentum.
Inflation battle
Despite the market relief with Wednesday’s CPI report, the latest figures also underline the slow and frustrating nature of the fight against inflation, which has often moved sideways – sometimes for months – on its broader downward path.
“The in-line CPI print shows that while substantial progress has been made in the fight against high inflation, the last mile is proving to be more challenging,” said Josh Jamner of ClearBridge Investments. “Underlying inflationary pressures remain at a pace modestly above the Fed’s 2% target. With inflation remaining stable, the market narrative should not see a significant shift due to current data.”
Several Fed officials reiterated their deep uncertainty about the extent to which the central bank will have to cut rates, highlighting the difficulties policymakers face in determining the right setting to keep the economy in balance.
Traders will now turn their focus to US PPI data due later Thursday, which is expected to show total producer prices and core producer prices for October rose year-on-year.
At Citigroup Inc. Economists maintained their stance that the Fed will cut rates by 50 basis points in December following the CPI data.
“While the details remain volatile and not quite ‘normal,’ Fed officials should be comfortable that inflation is slowing, with easing wage pressures, declining near-term inflation expectations and high interest rates continuing to weigh on demand to houses and prices. Veronica Clark and Andrew Hollenhorst.
In other commodities, oil retreated after gaining on Wednesday. Gold fell lower for a fifth session.
Main events this week:
Eurozone GDP, Thursday
US PPI, unemployment claims, Thursday
Fed speakers Thursday include Jerome Powell, John Williams and Adriana Kugler
Chinese retail sales, industrial production, Friday
US retail sales, Empire production, industrial production, Friday
