Asian Stocks Rise After US Inflation Backs Fed Cut: Markets Wrap

(Bloomberg) -- Asian stocks rose Thursday after US equities snapped a two-day slide on benign inflation data that supported expectations of a Federal Reserve interest-rate cut this month.

Japanese and Hong Kong stocks led gains in the region, with the MSCI Asia Pacific index on pace for the highest close in over a month. The rally was driven by technology names after the Nasdaq 100 surged to a record high on Wednesday. US stock futures edged lower.

“Little surprises on the inflation front have paved the way for a more supportive risk environment across the region,” said Jun Rong Yeap, market strategist at IG Asia Pte. “The broader theme around a US soft landing, Fed’s easing and positive year-end seasonality may continue to see the equities markets squeezing out gains to end the year well, coupled with less over-bought conditions.”

US consumer price index data released on Wednesday was in line with expectations, cementing forecasts for the Fed to cut rates by 25 basis points later in December. Swaps traders have now virtually priced in such a move, compared with a 75% chance a week ago. An index of dollar strength fell Thursday, moderating a gain on Wednesday that was helped along by the higher Treasury yields.

Yields for Australian government debt jumped and the Australian dollar strengthened on Thursday after data showed more jobs were added to the economy than anticipated and unemployment unexpectedly fell. Treasury yields edged higher.

In the foreign-exchange market, the won slipped as South Korea’s political troubles persisted. President Yoon Suk Yeol accused the opposition of trying to paralyze his administration and siding with North Korea in a defiant speech as the chief of his own party called for his impeachment.

Over in China, stocks headed for a third straight week of gains. Traders are awaiting details from a two-day Central Economic Work Conference that is expected to map out policies for next year, following stimulus signals from top leaders.

Authorities also set a stronger-than-expected yuan fixing on Thursday, extending their support for the currency after it slid on a Reuters report that the nation is considering FX depreciation next year.

Officials must focus on “how will they deliver fiscal stimulus more directly to consumers so the economy can more directly shift to consumption-led rather than investment led,” Amy Xie Patrick, head of income strategies for Pendal Group, said on Bloomberg Television.

The yen trimmed earlier gains to trade little changed. 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. 

January is now the most popular timing among BOJ watchers predicting when the next rate hike may come, though more than 40% still expect a move from the central bank next week, according to the latest Bloomberg survey. 

In the meantime, traders are awaiting interest-rate decisions from the Swiss National Bank and European Central Bank on Thursday, with economists predicting that both policymakers will reduce borrowing costs.

In commodities, oil was steady after three days of advances, as the US looked increasingly likely to further sanction Russia’s and Iran’s energy sectors. Gold slipped.

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.

--With assistance from Yasutaka Tamura.

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