Asian stocks rebound, dollar cautious ahead of inflation test

A man wearing a protective mask reflects on an electronic board displaying stock prices outside a brokerage in Tokyo, Japan, September 29, 2021. REUTERS/Issei Kato

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  • https://tmsnrt.rs/2zpUAr4
  • Nikkei up 1.1%, S&P 500 futures flat
  • Japanese officials protest ‘excessive’ yen weakness
  • Sources say ECB could raise rates to around 2%

SYDNEY, Sept 12 (Reuters) – Asian stock markets rallied on Monday on hopes that a key U.S. inflation reading will show some slowing, while the U.S. dollar was held back by risk of a rate hike of European interest and Japanese intervention.

Holidays in China and South Korea slowed trading as traders were unsure of the implications of Ukraine’s surprise success against Russian forces. Read more

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) added 0.5%, after rebounding slightly from a two-year low hit last week. The Japanese Nikkei (.N225) added another 1.1%, after gaining 2% last week.

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Chinese blue chips (.CSI300) firmed 1.3% ahead of retail and industrial data due later in the week which may show some improvement in August after a disappointing July.

Wall Street struggled to extend Friday’s rebound with S&P 500 futures and Nasdaq futures flat. EUROSTOXX 50 futures gained 0.6% and FTSE futures 0.2%.

Bulls are hoping Tuesday’s reading of U.S. consumer prices will hint at a spike in inflation as lower gasoline prices are expected to drag the headline index down 0.1%, a Reuters poll shows. .

The core is expected to rise 0.3%, although some analysts see a chance of a weaker report.

“Arguably, with the economy contracting in the first half of the year and household discretionary spending capacity under severe pressure, we are due for a modest downside surprise,” Westpac economists said. .

“As such, we expect +0.2% for the core and -0.2% for the stock,” they added. “If this is achieved, it should not be assumed that October and beyond will see repeats, with volatility likely to persist.”

A weak number could reignite speculation that the Federal Reserve will only hike 50 basis points this month, although it would likely need to be very low to have any real impact given the virulence of policymakers policies recently. Read more

The market is currently implying an 88% chance that the Fed will hike 75 basis points.

BofA global economist Ethan Harris worries that by focusing on actual inflation to determine when to stop, central banks are going too far. The bank raised its federal funds rate target to a range of 4.0-4.25%, with a 75 basis point hike in September and smaller increases thereafter.

“For investors, this means more pressure on interest rates, more weakness in risk assets and further upside for the super strong dollar,” Harris said.

“In our view, these trends only reverse when markets price in the full fury of central bank hikes and we’re not there yet.”

DOLLAR NOT YET DONE

For now, the dollar has been hit by profit taking in a very long market on the currency after a month of sustained gains.

The dollar has appreciated so rapidly against the yen that Japanese authorities are increasingly protesting their currency’s decline, sparking speculation of intervention and pressure on the Bank of Japan to moderate its monetary policy. yield curve control.

The Japanese government must take necessary action to counter excessive declines in the yen, a senior government official said on Sunday, after it hit its weakest level against the dollar in 24 years. Read more

Still, after an early decline, the dollar quickly rebounded to be up 0.4% at 143.14 yen, although still below last week’s high at 144.99.

The dollar index stood at 108.770, after hitting 110.790 last week.

The euro rose 0.4% to $1.0080 and moved away from its recent low of $0.9865.

This was helped in part by a Reuters report that European Central Bank policymakers see a growing risk that they will have to raise their key interest rate to 2% or more to rein in record inflation despite a likely recession. . Read more

ANZ analysts noted that the dollar over the past month has risen around 9% against the euro and the Chinese yuan, 12% against the pound and 19% against the yen.

“The soaring dollar puts pressure on developing countries, which find dollar-denominated imports more expensive,” they said in a note.

“With Fed speakers taking every opportunity to hammer home a hawkish message and impending quantitative tightening, the USD is not about to turn around dramatically.”

The dollar’s rise combined with high bond yields was a drag on gold, which was hovering at $1,713 an ounce after hitting a low of $1,690 last week.

Oil prices also trended lower on worries about a global economic slowdown, although supply cuts prompted a 4% rebound on Friday.

On Monday, Brent was down $1.29 to $91.55, while U.S. crude lost $1.28 to $85.51 a barrel.

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Reporting by Wayne Cole; Editing by Himani Sarkar and Ana Nicolaci da Costa

Our standards: The Thomson Reuters Trust Principles.

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