Asian Equities Climb as US Record High Lifts Mood: Markets Wrap

(Bloomberg) -- Asian equities rose Thursday after their US peers set a fresh high ahead of inflation data that may define Federal Reserve policy easing in the coming months. 

Shares in Japan, South Korea, Australia and China all advanced. Gains for Hong Kong and mainland China equities followed the release of details for a People’s Bank of China liquidity tool institutional investors can use to purchase stocks, a measure initially unveiled last month. The gains in China extended volatile trading that included the biggest drop in more than four years for a benchmark of mainland stocks on Wednesday.

Treasuries were steady in Asian trading after yields drifted higher in New York on Wednesday. The Bloomberg Dollar Spot Index was little changed after rising in its eight prior sessions. The yen was steady against the greenback after slumping to the lowest level since mid-August to around 149 per dollar on Wednesday. South Korean bond futures rose following news of inclusion in FTSE Russell’s World Government Bond Index.

Few signs of extra support for China’s economy and financial markets appeared, indicating further gyrations for the nation’s equities. A gauge of volatility for Hong Kong stocks was a touch lower Wednesday but remained well above historically averages. One sticking point for investors is whether there will be more fiscal stimulus. Authorities said Wednesday a press conference on the topic will be held over the weekend.

“Leading into that meeting there is definitely a lot of optimism and hope” around fiscal clarity, said Yuting Shao, macro strategist for State Street Global Markets, on Bloomberg Television. The broader themes of lower US borrowing costs and official support for China’s economy will act as tailwinds for risk sentiment, she added. “Any clarity from China is going to add another layer on top.”

The bar is high for China’s Ministry of Finance to convince the market that its reflation pivot is back on more firmly at the press conference on Saturday, according to Morgan Stanley. 

Elsewhere in Asia, Taiwan Semiconductor Manufacturing Co. posted a better-than-expected 39% rise in quarterly revenue on Wednesday. Markets are closed in Taiwan on Thursday. 

Back in the US, the S&P 500 rose 0.7% to a record high on Wednesday, its 44th of the year, with tech shares again propelling the gains. Apple Inc. climbed 1.7%. Nvidia Corp. halted a five-day rally while Tesla Inc. edged lower ahead of the Robotaxi launch. Alphabet Inc. fell 1.5% on news the US is weighing a Google breakup in a historic big-tech antitrust case.

Gains for tech reflected prior weakness that represented an attractive buying opportunity, according to Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management. “We remain positive on the tech sector as well as the outlook for artificial intelligence,” she said. “We believe volatility should be utilized to build long-term AI exposure.”

US consumer price data to be released later Thursday is expected to show inflation further moderating, supporting the Fed’s anticipated easing in the coming months. Despite this, market pricing indicates the likelihood of another 50 basis point rate cut is all but off the table following last week’s strong jobs report. 

Markets barely budged on Wednesday after minutes of the latest Fed gathering, which showed Jerome Powell received some push-back on a half-point rate cut in September, as some officials preferred a smaller reduction.

“Policymakers agree inflation is fading and they see potential weakness in job growth,” said David Russell at TradeStation. “That keeps rate cuts on the table if needed. The bottom line is that Powell might have the market’s back headed into the year end.”

Inflation Data

The consumer price index is seen rising 0.1% in September, its smallest gain in three months. Compared with a year earlier, the CPI probably rose 2.3%, the sixth-straight slowdown and the tamest since early 2021. The gauge excluding the volatile food and energy categories, which provides a better view of underlying inflation, is projected to rise 0.2% from a month earlier and 3.2% from September 2023.

“The Fed’s decision to shift its focus from inflation to the labor market means that inflation data, including tomorrow’s CPI, is likely to become less market-moving than it had been,” said Matthew Weller at Forex.com and City Index.

“Despite that logical observation, this month’s CPI report may still drive market volatility coming on the back of Friday’s stellar jobs report, a reading that hints at the potential for renewed upside risks to inflation,” he added.

Meanwhile, Fed Bank of San Francisco President Mary Daly said she expects the US central bank will continue lowering interest rates this year in an effort to protect the labor market. “I think that two more cuts this year, or one more cut this year, really spans the range of what is likely,” Daly said Wednesday, referring to one or two quarter-point reductions.

In commodities, oil edged higher as US crude inventories swelled and traders monitored China’s plans for fiscal policy. Gold was little changed on Thursday after falling in the previous six sessions. 

Key events this week:

Some of the main moves in markets:

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This story was produced with the assistance of Bloomberg Automation.

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