Asian equities were poised to climb as traders bet that slowing US inflation had minimized any risk of the Federal Reserve hiking interest rates later on Wednesday.
Investors in the region were also taking positive cues from the outlook from the People’s Bank of China, which is projected to cut its medium-term lending facility rate on Thursday, and the Bank of Japan, which is expected to keep its ultra-easy policy unchanged Friday.
Futures for Japan pointed to a gain of more than 1% while contracts for Australia and Hong Hong Kong were also higher after the S&P 500 provided a strong lead for Asia. The US benchmark’s fourth consecutive day of gains — its longest winning run since early April — has it and approaching the 4,400 mark, a level it hasn’t traded at for more than a year.
Wall Street’s “fear gauge” — the Cboe Volatility Index — dropped back below 15, versus an average of 23 for the past year, underscoring support for risk assets. The dollar held declines from the US session in early Asian trading.
Swap traders have put the odds of a June increase by the Fed at only 10%, while still seeing the potential for a July move.
Short-term Treasury yields surged Tuesday to the highest levels since March amid a decline in expectations that the Fed will cut interest rates this year. Two-year rates, which are more sensitive to imminent policy moves, climbed nine basis points to 4.67%. Bond yields in Australia and New Zealand followed Treasury rates higher Wednesday.
Tiffany Wilding at Pacific Investment Management Co. expects the Fed to signal that a potential pause shouldn’t be interpreted as the end of hikes. Alexandra Wilson-Elizondo at Goldman Sachs Asset Management sees a “hawkish pause” as the rate of disinflation remains incompatible with the Fed’s 2% target. And UBS Chief Investment Office bets officials will send a “clear message” that at least one more increase is likely at a later meeting.
Ian Lyngen at BMO Capital Markets says he’ll be on the lookout for any comments from Jerome Powell regarding the recent breakout in the US equity benchmark that reached its highest level since April 2022. Back in December, the Fed Chair highlighted the importance of financial conditions continuing to reflect the policy restraints put in place to tame inflation.
Both the consumer price index and the core CPI — which excludes food and energy — decelerated on an annual basis, highlighting inflation’s descent since peaking last year. At 4%, year-over-year inflation is now at its lowest level since March 2021. That said, a key gauge of prices closely watched by the Fed continued to rise at a concerning pace.
Elsewhere in markets, oil edged lower Wednesday after rebounding by more than 3% Tuesday from a three-month low.
Gold was steady, as was Bitcoin.
Key events this week:
- Eurozone industrial production, Wednesday
- US PPI, Wednesday
- Federal Reserve rate decision, updated economic forecasts, Jerome Powell’s press conference, Wednesday
- IEA oil market report, Wednesday
- China property prices, retail sales, industrial production, Thursday
- European Central Bank President Christine Lagarde holds press conference following the rate decision, Thursday
- US initial jobless claims, retail sales, empire manufacturing, business inventories, industrial production, Thursday
- Bank of Japan rate decision, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 8:17 a.m. Tokyo time. The S&P 500 rose 0.7%
- Nasdaq 100 futures rose 0.1%. The Nasdaq 100 rose 0.8%
- Nikkei 225 futures rose 1.2%
- Australia’s S&P/ASX 200 Index futures rose 0.6%
- Hang Seng Index futures rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0790
- The Japanese yen was little changed at 140.17 per dollar
- The offshore yuan was little changed at 7.1722 per dollar
- The Australian dollar was little changed at $0.6769
Cryptocurrencies
- Bitcoin was little changed at $25,871.39
- Ether was little changed at $1,736.78
Bonds
- The yield on 10-year Treasuries advanced eight basis points to 3.81%
- Australia’s 10-year yield advanced five basis points to 3.98%
Commodities
- West Texas Intermediate crude fell 0.3% to $69.20 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Rita Nazareth.