(Dec 19): Asian equities rose after cooling US inflation data backed the case for Federal Reserve (Fed) interest-rate cuts and as calming tech jitters supported American stocks.
The MSCI Asia-Pacific Index advanced 0.4%, with technology shares such as Taiwan Semiconductor Manufacturing Co and SoftBank Group Corp among the biggest contributors. The S&P 500 climbed 0.8% on Thursday, while the Nasdaq 100 rose 1.5%. Gains for tech were helped by a solid outlook from giant Micron Technology Inc, easing concerns over artificial intelligence spending and valuations.
US stock futures edged lower on Friday in a sign the consumer price index (CPI)-driven rally may have at least partly run its course. They were pushed down by shares of Nike Inc, which fell around 10% in late trading on further weakness in China.
US inflation took centre stage on Thursday as traders looked past data caveats tied to the recent government shutdown, focusing instead on the slowest increase in consumer prices since early 2021. The cooling print boosted investor confidence and bolstered Treasuries on renewed expectations of Fed rate cuts.
“Given that inflation is significantly lower month-over-month there is clearly room to keep cutting rates in order to support the labour market,” said Chris Zaccarelli, the chief investment officer of Northlight Asset Management. “If the doves win out, then we are likely to see stock prices supported — and move higher — as the Fed continues to lower interest rates while the economy continues to grow.”
See also: Asian stocks fall as traders pull back from tech
The yen edged lower against the dollar on Friday before a Bank of Japan monetary policy decision. The central bank is widely expected to raise its benchmark rate to the highest level in three decades amid confidence it will achieve its stable inflation target.
“The guidance delivered at the post-decision press conference will be the critical variable,” Kyle Rodda, a senior analyst at Capital.com in Melbourne, wrote in a client note. “Volatility in the markets will be driven at the margins by when that next move may come, with the August 2024 market meltdown likely in the back of traders’ — and possibly policymakers’ — minds.”
CPI caveats
See also: Asian stocks move in tight range; oil gains on Venezuela
The slowdown in US inflation came with some issues. The Bureau of Labor Statistics couldn’t collect prices throughout October because of the temporary government shutdown, and it started sampling later than usual in November.
“On the face of it the November CPI release is very benign and gives ammo to Fed doves,” Krishna Guha, an economist at Evercore ISI, wrote in a note. “But the surprise is so large, in particular in housing services inflation, that the committee as a whole will be very wary that technical challenges and judgements associated with the shutdown that prevented any number for October may have distorted the picture materially.”
Swaps are implying about 20% odds of a cut at the Fed’s next policy meeting in January. A reduction is fully priced in by mid-2026. Traders are also sticking with their call that the Fed lowers rates twice next year.
Geopolitics remained in the spotlight. A proposed US$11 billion ($14.2 billion) arms sale from the US to Taiwan drew an angry response from China. Tensions with Venezuela and Russia supported oil prices.
On Thursday, a busy day for global monetary policy decisions saw German and UK bonds underperforming US Treasuries after the European Central Bank and Bank of England issued hawkish signals on the outlook for their rate paths.
Oil headed for a second weekly decline as concerns over a growing glut outweighed potential supply disruptions. Gold and silver hovered near record highs, after the slower-than-expected US inflation data supported bets for more interest-rate cuts. Bitcoin headed for a third day of losses on Friday, and has fallen around 2% this week.
Corporate highlights:
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- ICICI Prudential Asset Management Co’s shares are set to begin trading in Mumbai on Friday, following an initial public offering that raised INR106 billion (US$1.2 billion or $1.5 billion), potentially marking the year’s final major listing.
- TikTok chief executive officer Shou Chew told employees that the social media app’s parent company, ByteDance Ltd, signed binding agreements to create a US joint venture majority-owned by American investors.
- Apple Inc is making changes to its iOS software in Japan to comply with a new local law aimed at fostering competition, part of broader efforts by the iPhone maker to adapt to regulations around the world.
- The New York Stock Exchange and Nasdaq Inc said they won’t alter their trading schedules on Dec 24 and 26 after US President Donald Trump’s executive order to close the federal government on those days.
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 10.59am Tokyo time on Friday
- Nikkei 225 futures (OSE) rose 0.8%
- Japan’s Topix rose 0.7%
- Australia’s S&P/ASX 200 rose 0.4%
- Hong Kong’s Hang Seng rose 0.3%
- The Shanghai Composite was little changed
- Euro Stoxx 50 futures fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at US$1.1724
- The Japanese yen fell 0.1% to 155.72 per dollar
- The offshore yuan was little changed at 7.0349 per dollar
Cryptocurrencies
- Bitcoin fell 0.3% to US$85,304.2
- Ether fell 0.3% to US$2,820.18
Bonds
- The yield on 10-year Treasuries was little changed at 4.13%
- Japan’s 10-year yield was little changed at 1.975%
- Australia’s 10-year yield was little changed at 4.75%
Commodities
- West Texas Intermediate crude fell 0.3% to US$55.99 a barrel
- Spot gold fell 0.2% to US$4,322.93 an ounce
Uploaded by Tham Yek Lee
