The dollar fell to a three-month low ahead of a US inflation report that will help shape the Federal Reserve’s policy trajectory. Hong Kong stocks rose after data showed a strong credit expansion in the world’s second-largest economy.
(Bloomberg) — The dollar fell to a three-month low ahead of a US inflation report that will help shape the Federal Reserve’s policy trajectory. Hong Kong stocks rose after data showed a strong credit expansion in the world’s second-largest economy.
The New Zealand dollar rebounded after initially paring gains on news of the local central bank’s decision to keep interest rates unchanged for the first time in almost two years. The nation’s sovereign bond yields declined.
Across Asia, stocks were a mixed bag, with increases in Australia and slides in both Tokyo and Seoul. In contrast to the gains in Hong Kong, China’s domestic benchmark CSI 300 index was flat, an indication that local investors would like to see stronger stimulus to salvage an ailing economy.
US stock futures were little changed in Asian morning trade.
Dominating traders’ attention is US consumer price data due later Wednesday, with a Bloomberg survey showing expectations for both core and headline inflation to moderate. Also in the spotlight is the yen’s advancement beyond the key 140 level partly on speculation that the Bank of Japan will tweak policy later this month.
A gauge of the dollar strength extended declines to reach the lowest since April on expectations for easing US inflation. Treasury yields steadied.
The offshore yuan gained for a fifth day against the greenback, after China’s central bank extended support for the currency via a stronger-than-expected daily reference exchange rate.
The US inflation report is unlikely to move the dial ahead of the Federal Reserve’s July meeting, but it will impact expectations of whether a second 25-basis-point rate hike is needed before the year’s end, according to Tony Sycamore, market analyst at IG Australia Pty.
“If headline inflation comes in at 2.9% to 3.2%, the Fed will likely hike by 25 basis points in July and then move to the sidelines, possibly until year-end,” Sycamore wrote in a note. “Yields would extend their decline from recent highs, the US dollar would ease, and the S&P 500 would likely rally ~0.75%.”
The S&P 500 extended its advance beyond the 4,400 mark Tuesday, while the Dow Jones Industrial Average added almost 1%. Energy producers led gains as West Texas Intermediate oil topped its key 100-day moving average.
Meanwhile in the US, after surging by a four-decade high in June 2022, CPI has pulled back steadily in the face of the Fed’s monetary policy onslaught. That slowdown has given support to the stock-market’s surge this year, and bulls have strong precedent for their enthusiasm.
Since the 1950s, inflation peaks have almost always been followed by double-digit equity gains, according to data compiled by the Leuthold Group. The S&P 500 has gained more than 20% since it bottomed out in October, placing it up about 15% since the peak CPI data was released last year.
Elsewhere, oil steadied Wednesday after rising amid indications that Russian crude production is dropping, signaling the market’s supply glut may be coming to an end. Gold rose.
Key events this week:
- Canada rate decision, Wednesday
- Bank of England Governor Andrew Bailey speaks, Wednesday
- US CPI, Wednesday
- Federal Reserve issues Beige Book, Wednesday
- Fed speakers include Neel Kashkari, Loretta Mester, Raphael Bostic, Wednesday
- China trade, Thursday
- Eurozone industrial production, Thursday
- US initial jobless claims, PPI, Thursday
- US University of Michigan consumer sentiment, Friday
- US banks kick off earnings, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 11:08 a.m. Tokyo time. The S&P 500 rose 0.7%
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose 0.5%
- Japan’s Topix index fell 0.7%
- Hong Kong’s Hang Seng Index rose 0.9%
- China’s Shanghai Composite Index fell 0.2%
- Australia’s S&P/ASX 200 Index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.1026
- The Japanese yen rose 0.5% to 139.66 per dollar
- The offshore yuan rose 0.2% to 7.1967 per dollar
- The Australian dollar rose 0.4% to $0.6716
- The New Zealand dollar was little changed at 0.6204
Cryptocurrencies
- Bitcoin was little changed at $30,548.88
- Ether rose 0.5% to $1,882.25
Bonds
- The yield on 10-year Treasuries was little changed at 3.96%
- Japan’s 10-year yield advanced 1.5 basis points to 0.465%
- Australia’s 10-year yield declined two basis points to 4.17%
Commodities
- West Texas Intermediate crude rose 0.2% to $74.98 a barrel
- Spot gold rose 0.2% to $1,936.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth.
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