Stocks extend winning run on optimism inflation peaking
Asian stocks advanced on Tuesday and the dollar steadied below a recent peak ahead of U.S. inflation data that some strategists said could offer another signal that inflation has peaked.
S&P 500 futures and Nasdaq futures held firm, while European stock futures dipped, setting the stage for a subdued start for European markets.
MSCI’s broadest index of Asia-Pacific shares ex-Japan (.MIAPJ0000PUS) rose 0.8%, led by a 2.6% jump for South Korea’s KOSPI (.KS11). Japan’s Nikkei (.N225) put on 0.2%
The MSCI gauge has risen for four days in a row, bouncing back from two-year lows.
Analysts, however, warned that U.S. core inflation is likely to march on and that the near-term rate implications are unclear.
“It’s too early to be celebrating the end of inflation, as some market participants seem already to be doing,” said ING economist Rob Carnell.
U.S. crude is hovering below $90 a barrel, down nearly 30% since the middle of June and roughly where it traded before Russia’s invasion of Ukraine.
Interest rate futures imply a 90% chance that the Federal Reserve lifts its benchmark interest rate by 75 basis points at next week’s policy meeting – a position that is perhaps most vulnerable to a downside CPI surprise. read more
“A further cooling in inflation would support the case for a step down in the pace of policy tightening to a 50 basis points rate hike at the FOMC meeting next week,” said Kristina Clifton, a senior economist at CBA.
“Nevertheless, an upside surprise to inflation will easily cement market expectations of another outsized 75 basis points rate hike.”
U.S. inflation figures are due at 1230 GMT and the consensus is for the core inflation rate last month to have risen 0.3% month-on-month, the same as in July.
On Monday, Wall Street indexes posted a fourth straight session of gains.
DOLLAR BELOW RECENT PEAK
Asia data out on Tuesday offered a cloudy picture of regional economies. A 9% year-on-year jump in Japanese wholesale prices points to pressure on corporate margins, yet a slowdown in gains for August holds some hope of relief. read more
In New Zealand, rate hikes which began a year ago are starting to bite, sending home prices down 6% since last August.
The investment banking world is also offering a counterpoint to stock markets’ enthusiasm. Goldman Sachs (GS.N) is mulling job cuts, a person familiar with the plans told Reuters. read more
A KKR-led (KKR.N) consortium has told Australia’s Ramsay Health Care (RHC.AX) it will not improve its $14.5 billion cash-and-stock offer for the hospital operator, a move that will likely put a deal on ice. read more
In currency markets the dollar is off recent peaks. Its index against major peers was steady at 108.16, after falling 0.7% overnight, the largest daily decline since August.
Tailwinds from last week’s European rate hike have the euro extending a bounce and above parity at $1.0127.
Even the battered Japanese yen is having a breather at 142.5 per dollar – a bit stronger than last week’s 24-year low at 144.99 with some investors closing bets on a further slide as risks of official intervention increase.
U.S. Treasury yields rose overnight after some lacklustre auctions. Selling was heaviest at the very long end, with the 30-year yield up about 6 bps to around 3.5%.
Benchmark 10-year yields steadied at 3.3425% in Tokyo trade on Tuesday, beneath the two-year yield of 3.5489%.
