SINGAPORE: Asian shares jumped on Wednesday as the dollar pared its heaviest losses in a year; Stable U.S. inflation data has boosted investors’ confidence that the Fed is done raising interest rates and could begin cutting them early next year.
Headline consumer prices in the US remained flat in October, contrary to expectations of a 0.1% increase. Core CPI also came in below the forecast of 0.3%, at 0.2%.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.9% in early trading.
Japan’s Nikkei index rose 1.8%. Overnight, the Nasdaq gained 2.4%, bonds rose and the dollar lost more than 1.6% against the euro.
“This was unquestionably good news on the inflation front,” Sam Rines, managing director of research firm CORBU in Texas, said in a note to clients.
“But now the question is: ‘Can it get better?’” Interest rate futures have risen sharply as investors priced in the possibility of further rate hikes, predicting a rate cut as early as May and the possibility that it could come even sooner. , in March.
Two-year Treasury yields, which closely track short-term interest rate expectations, fell more than 22 basis points (bps) on Tuesday and were steady at 4.84% in Tokyo trading Wednesday.
Ten-year bond yields fell 19 basis points overnight, falling below the 4.5% support after hitting a nearly two-month low of 4.43% in Asia.
When bond prices rise, yields fall. In currency trading, the dollar suffered its heaviest sell-off in 12 months, with the sharpest losses against risk-sensitive currencies such as the Australian dollar.
The Australian Dollar jumped 2 percent overnight and was steady at $0.6496 in Asia.
The New Zealand dollar remained at $0.60, up 2.2%. The euro rose above $1.08 and even the battered yen rose to 150.5 per dollar.
With the influence of evidence that rent increases are slowing down, the details of the data made investors even more happy.
Automobile prices fell and the downward trend in six-month annualized core inflation continued.
Asian stock markets rise ahead of US inflation data; yen stumbled
“This reading will likely confirm, in our view, that the Fed is keeping interest rates steady at the moment,” said Nomura strategist Chetan Seth. “The latest US labor market and inflation reports show that the economy is softening but not collapsing, and bond yields and oil prices are moderating, reducing the risks of a hard landing (for the economy next year).”
On the other side of the world, China’s central bank increased liquidity injections on Wednesday but left its interest rate unchanged while rolling over maturing medium-term policy loans.
The yuan is hovering near its highest level in two months. As markets recovered in Japan, the Bank of Japan stepped back and reduced its regular bond purchases.
Ten-year Japanese government bond yields fell to a one-month low of 0.775%.
Markets’ next focus will be on US retail sales data, but analysts think even a positive figure is unlikely to dampen enthusiasm about the possible end of the rate hike cycle.
“With so many forces pushing inflation down (including softening job markets in the U.S. and Canada), it seems to me that the market will ride that number and even a strong retail sales announcement won’t derail the soft landing/1995 mood,” Spectra Markets President Brent Donnelly said. said. he said in a note.
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