Asian Stocks Rally, Dollar Weakens After US CPI: Markets Wrap

(Bloomberg) — Asian equities tracked gains on Wall Street as the latest US inflation data reinforced bets for Federal Reserve interest-rate cuts.

Shares in Australia, Japan and South Korea climbed. Futures contracts for the S&P 500 and Nasdaq 100 also rose early Thursday after the two benchmarks gained more than 1% to touch fresh highs on Wednesday. Hong Kong shares will resume trading on Thursday after a holiday.

Australian and New Zealand government bonds rallied. Treasuries were steady after gains in the prior session that pushed yields lower across the curve. The US 10-year rate fell 10 basis points, while the policy-sensitive two-year yield dropped nine basis points as investors brought forward interest rate cut expectations. Swaps market pricing had priced in one cut this year, but that jumped to two following the inflation print on Wednesday.

The Bloomberg dollar index fell to a one-month low as the currency weakened against all its Group-of-10 peers, tracking the decline in yields. 

The yen pared some of its early Thursday gains after Japan’s economy contracted in the first quarter, with private consumption and capital spending both retreating. The yen rose 1% against the greenback in its previous session to the highest level in almost a week.

The so-called US core CPI — which excludes food and energy costs — climbed 0.3% from March, in line with consensus expectations but snapping a streak of three above-forecast readings which spurred concern that inflation was becoming entrenched. The year-over-year measure cooled to the slowest pace in three years.

“We see the April print as consistent with a direction of travel for inflation dynamics that – in the context of moderation in the real economy – can yield a September cut followed by a second in December,” said Krishna Guha at Evercore.

The latest inflation report may offer US policymakers hope that inflation is resuming its downward trend, which would help pave the way for rate cuts. Separate retail sales data indicated some softening of the resilient consumer demand that’s been bolstering the economy.

“The market likes it,” said Gary Pzegeo at CIBC Private Wealth US. “The news on core inflation was better than expected. Retail sales also showed some deceleration from the previously hot consumer sector. Taken together, this supports a Fed rate-cut in the fall.”

The next CPI figures will be released exactly on the same day when the Fed meets to decide on interest rates — June 12.

Fed Bank of Minneapolis President Neel Kashkari repeated the central bank likely needs to keep rates at the current level for “a while longer,” and questioned how much they’re restraining the US economy.

In corporate news, Boeing Co. faces possible criminal prosecution after the US Justice Department found the company violated a deferred-prosecution agreement tied to two fatal crashes half a decade ago. Walt Disney Co. Chief Executive Officer Bob Iger said marketing expenses at the flagship Disney+ streaming service are too high and will be cut.

Data set for release in Asia includes labor market figures for Australia, industrial output for Japan and a monetary policy decision in the Philippines.

Oil edged higher on a bigger-than-expected draw in commercial crude stockpiles. Gold prices also climbed early Thursday, placing the precious metal on pace for its third daily advance.

Key events this week:

• Japan GDP, industrial production, Thursday
• US housing starts, initial jobless claims, industrial production, Thursday
• Philadelphia Fed President Patrick Harker speaks, Thursday
• Cleveland Fed President Loretta Mester speaks, Thursday
• Atlanta Fed President Raphael Bostic speaks, Thursday
• China property prices, retail sales, industrial production, Friday
• Eurozone CPI, Friday
• US Conf. Board leading index, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 9:11 a.m. Tokyo time
• Hang Seng futures were unchanged
• Japan’s Topix was little changed
• Australia’s S&P/ASX 200 rose 1%
• Euro Stoxx 50 futures rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro was little changed at $1.0888
• The Japanese yen rose 0.3% to 154.40 per dollar
• The offshore yuan was little changed at 7.2111 per dollar
• The Australian dollar was little changed at $0.6698

Cryptocurrencies

• Bitcoin rose 1% to $66,656.7
• Ether rose 0.6% to $3,041.68

Bonds

• The yield on 10-year Treasuries was little changed at 4.33%
• Australia’s 10-year yield declined nine basis points to 4.23%

Commodities

• West Texas Intermediate crude rose 0.5% to $79 a barrel
• Spot gold rose 0.3% to $2,392.19 an ounce

This story was produced with the assistance of Bloomberg Automation.

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