Equities in Asia held a modest advance Thursday as wagers for a further softening of US inflation buoyed appetite for risk taking in global markets.
(Bloomberg) — Equities in Asia held a modest advance Thursday as wagers for a further softening of US inflation buoyed appetite for risk taking in global markets.
An index of the region’s stocks rose for a ninth time in 10 days as it headed for the highest level in about five months. A drop in Chinese shares pulled the gauge down from its earlier high, with selling evident on Hong Kong-listed technology companies after recent strength.
The yen rallied on a report that the Bank of Japan would look into the side effects of its ultra-loose policy. The yield on the nation’s benchmark 10-year bonds sat hard against the BOJ’s 0.5% ceiling, as traders remain wary of another shift from the central bank after Governor Haruhiko Kuroda took them by surprise in December when he doubled the amount yields could climb.
Australian and New Zealand bond prices climbed as Treasuries made a small extension to gains from the US session.
A gauge of the dollar declined slightly as investors looked beyond the drumbeat of hawkish comments from Federal Reserve officials. Traders also appeared to be downplaying a potentially miserable stretch of earnings and the specter of a recession as they focus on the upcoming US consumer price index.
“Continued rerating triggered by improved sentiment is carrying markets higher,” said Lorraine Tan, equity research director at Morningstar Asia. “Inflation pressure is easing and interest rates should be peaking within the next six months.”
CPI will be scrutinized top to bottom, with much focus on core inflation — which excludes food and energy and is seen as a better indicator than the headline measure. The projected 5.7% increase would be well above the Fed’s goal, helping explain its intention of keeping rates higher for longer. But the year-over-year price growth would also show moderation.
Futures for the Nasdaq 100 edged lower after the technology sector, one of the most-beaten down groups during the Fed’s tightening campaign, led gains among US shares on Wednesday. Contracts for the S&P 500 were little changed while those for the Euro Stoxx 50 rose about 0.4%
Inflation data for China showed factory-gate prices falling more than expected in December and consumer prices ticking up as the end of Covid Zero snarled manufacturing operations but eliminated mobility curbs on people. The offshore yuan fluctuated while remaining near Wednesday’s closing level.
While Chinese assets have been top performers globally in recent months, many large foreign investors are wary of trusting the government given the regulatory shocks of 2022.
Read: China Trauma Proves Too Much for US Funds to Trust Xi Just Yet
“The last two months have shown that big swings in US CPI can spark significant volatility in the equity markets, given the large amounts of hedging flows and short-term options covering,” Saxo Capital Markets strategists including Charu Chanana wrote in a note. “With a big focus on CPI numbers again this week, similar volatility cannot be ruled out.”
Pacific Investment Management Co. said that while a recession could further challenge riskier assets like stocks, it continues “to see a strong case for investing in bonds, after yields reset higher in 2022 and with an economic downturn looking likely in 2023.”
Elsewhere in markets, oil steadied after five days of gains ahead of the US inflation figures and as China’s crude buying ramps up before the Lunar New Year holidays.
Gold stayed in a holding pattern ahead of the data, which could determine whether its two-month uptrend continues.
Key events this week:
- US CPI, initial jobless claims, Thursday
- St Louis Fed President James Bullard at Wisconsin Bankers Association virtual event, Thursday
- Richmond Fed President Thomas Barkin speaks at VBA/VA Chamber, Thursday
- China trade, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan, Wells Fargo report earnings, Friday
This week’s MLIVE Pulse Survey:
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 1:14 p.m. Tokyo time. The S&P 500 rose 1.3%
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 rose 1.8%
- Japan’s Topix rose 0.3%
- Australia’s S&P/ASX 200 rose 1.1%
- The Shanghai Composite fell 0.2%
- Hong Kong’s Hang Seng Index fell 0.3%
Currencies
- Bloomberg Dollar Spot Index fell 0.1% to 1,235.71
- The Japanese yen rose 0.6% to 131.66 per dollar
- The euro rose 0.1% to $1.0768
- The offshore yuan was little changed at 6.7668 per dollar
- The Australian dollar rose 0.1% to $0.6911
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.52%
- Japan’s 10-year yield was unchanged at 0.50%
- Australia’s 10-year yield declined 13 basis points to 3.59%
Commodities
- West Texas Intermediate crude rose 0.1% to $77.52 a barrel
- Spot gold rose 0.4% to $1,883.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth, Tassia Sipahutar and Youkyung Lee.
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