Asian Stocks to Rise as US Inflation Backs Fed Cut: Markets Wrap

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(Bloomberg) — Asian stocks were poised to climb Thursday after US equities snapped a two-day slide on benign inflation data that supported expectations for an interest rate cut this month.

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Equity futures for Japan and Australia climbed, while those for Hong Kong were steady. The S&P 500 rose 0.8% and the Nasdaq 100 advanced 1.9% to a new high, with the strong showing for tech pushing Amazon.com Inc and Meta Platforms Inc. to fresh records. Broadcom Inc. rose 6.6% following a report that the chipmaker was working on an AI deal with Apple Inc.

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Treasuries edged lower across the curve. The 10-year yield rose four basis points, while the policy-sensitive two-year yield rose one basis point Wednesday.

The moves were centered upon US consumer price index data that came in line with expectations, cementing forecasts for the Federal Reserve to cut interest rates by 25 basis points later in December. Swaps traders have now virtually priced in such a move, compared with an around 75% chance a week ago.

The inflation data, “gives the Federal Reserve the green light for a 25 basis point rate cut at the December meeting, as it helps to confirm that we are still making progress on inflation even though it remains sticky,” according to Skyler Weinand, chief investment officer at Regan Capital.

In Asia, economic reports set for release Thursday include labor market data for Australia, and inflation and industrial production for India.

An index of dollar strength rose Wednesday for a fourth session, helped along by higher Treasury yields. China’s yuan slid the most in a week following a report that Beijing is considering allowing the currency to weaken next year in response to the threat of a trade war with the US.

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Meanwhile, China’s two-day Central Economic Work Conference is expected to map out policies for next year, following stimulus signals from top leaders. 

The yen weakened for a third day Wednesday. Bank of Japan officials see little cost to waiting before raising interest rates, while still being open to a hike next week depending on data and market developments, according to people familiar with the matter.

Hikes, Cuts

Brazil’s central bank increased the benchmark interest rate by a full percentage point to 12.25% late on Wednesday, and promised to deliver two hikes of the same size in the next two meetings, as it rushes to recover investor confidence and tame inflation expectations.

The Canadian dollar advanced after hovering near a four and a half-year low once policymakers signaled they were ready to slow down on monetary easing. The Bank of Canada lowered its rate by half a percentage Wednesday, its second straight outsized cut. 

The Swiss National Bank and European Central Bank are also expected to reduce interest rates Thursday.

In commodities, crude futures rose after a Bloomberg News report that the Biden administration is considering new sanctions on Russia’s oil trade, a move that could tighten the market. The White House warned that Russia may fire another intermediate-range ballistic missile at Ukraine, after what Moscow said were strikes on its territory with US-supplied weapons. 

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Wall Street’s fear gauge, the Vix, fell below 14 following the CPI data, an indication the market is expecting calm in the near-term. Stocks and long bonds stand to benefit as fears of a higher inflation print evaporate, according to ClearBridge Investments’ Jeff Schulze.

“The debate for the FOMC next week between cut or skip is over,” Schulze said. “This inflation print should be risk-asset friendly and provide a tailwind to equity markets as we move through one of the strongest seasonal periods of the year.”

Key events this week:

• ECB rate decision, Thursday
• US initial jobless claims, PPI, Thursday
• Eurozone industrial production, Friday

Some of the main moves in markets:

Stocks

• Nikkei 225 futures rose 1.6% as of 7:31 a.m. Tokyo time
• S&P/ASX 200 futures rose 0.5%
• Hang Seng futures were little changed

Currencies

• The euro was unchanged at $1.0496
• The Japanese yen was little changed at 152.44 per dollar
• The offshore yuan was little changed at 7.2777 per dollar

Cryptocurrencies

• Bitcoin fell 0.1% to $101,471.23
• Ether was little changed at $3,830.69

Bonds

• Australia’s 10-year yield rose two basis points to 4.2%

This story was produced with the assistance of Bloomberg Automation.

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