- The US consumer price index for October is stable versus an expected increase of 0.1%
- Fed funds futures price in interest rate cuts by May
- Japanese government bonds rose as the Japanese economy contracted
SINGAPORE (Reuters) – Asian shares rose to their highest levels in two months on Wednesday in anticipation of stimulus in China and the end of interest rate hikes in the United States, while the dollar suffered sharp losses in the wake of moderate inflation in the United States. a report.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 2.3% by the mid-session break in Hong Kong, reaching its highest level since mid-September and on track for its biggest daily gain since January.
The Hang Seng Index (.HSI) rose nearly 3%, above its 50-day moving average, while Japan’s Nikkei (.N225) rose 2.3%.
Bond markets from Australia to South Korea posted their strongest gains since March, although gains in Treasuries and U.S. and European stock futures faded into flat trade.
Data on Tuesday showed that headline US consumer prices were flat in October, versus expectations for a 0.1% rise. The core CPI came in at 0.2%, below expectations of 0.3%.
“I think the CPI number has prompted the last person to cover their short positions,” Naka Matsuzawa, chief macro strategist at Nomura, said by phone from Tokyo.
He sees a “more complex” process ahead, as stock market exuberance eventually collides with bond market expectations that an economic slowdown will lead to lower interest rates.
“The bond market is probably more vulnerable than stocks,” he said.
Overnight, the Nasdaq (.IXIC) jumped 2.4% and the Russell 2000 small-cap index (.RUT) jumped 5%. The US dollar fell 1.6% against the euro and 2% against the Australian and New Zealand dollars.
Interest rate futures turned to cut rates as early as May, with a 30% chance that would happen sooner, in March. Two-year Treasury yields fell 22 basis points overnight and were mostly flat during Asian trade at 4.84%.
British inflation data due at 0700 GMT, US retail sales due at 1330 GMT and the expected morning meeting between US President Joe Biden and his Chinese counterpart Xi Jinping in San Francisco will be the next focus for financial markets.
Adding to the joy of markets in Asia were strong industrial production and retail sales data in China and a report from Bloomberg News that China plans to provide low-cost financing worth 1 trillion yuan ($137 billion) to boost the housing market.
Iron ore rose to its highest level in two and a half years and copper rose to its highest level in three weeks in Shanghai.
The mainland CSI300 Index (.CSI300) rose 0.6%. The Hang Seng Mainland Property Developers Index (.HSMPI) rose 4.3%.
Retail sales in China rose 7.6% in October, although this may have been influenced by the Golden Week holiday at the beginning of the month. Real estate remains in deep disarray, with investment in the January-October period down 9.3% year-on-year.
“It is clear that Beijing has become more proactive in recent weeks to help support the recovery,” HSBC economists said in a note to clients. “With continued uncertainty highlighted by the real estate sector, we believe Beijing will continue to increase support through fiscal and monetary means.”
The dollar’s weakness helped push the yuan’s value to a three-month high of 7.2356 to the dollar. The euro, which rose through its 200-day moving average overnight, ranged at $1.0877, and the pound sterling achieved sharp gains at $1.2491.
Australian wages data released on Wednesday showed high inflation is fueling wage trades, although 4% annual growth is still well below many other developed countries.
Meanwhile, Japan’s economy contracted in the July-September period, official data showed, leaving the yen unpopular as the slowdown dampens interest rate hike expectations there. The yen hit its lowest level in 16 years at 163.9 yen to the euro and gave up some of the gains it made on Tuesday to trade at 150.68 to the dollar.
Two-year Japanese government bonds managed their biggest rise since April 2022, with the yield falling more than 3 basis points to 0.055%.
Brent crude futures rose 0.4 percent, or 31 cents per barrel, to $82.78.
(This story has been rewritten to correct spelling of “Russell” in paragraph 9)
Tom Westbrook reports. Edited by Edmund Claman
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