Stocks to Jump as Cooler Inflation Curbs Rate Bets: Markets Wrap

(Bloomberg) — Stocks in Asia are poised to track a Wall Street rally after softer-than-expected US inflation data stoked speculation the Federal Reserve could pivot to a shallower pace of interest-rate hikes.

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Futures rose at least 1% for Australia and Hong Kong, while Japan is closed for a holiday Thursday that also rules out cash Treasuries trading. US equity contracts fluctuated after the S&P 500 hit a three-month high and the Nasdaq 100 climbed to more than 20% above a June low.

The optimism in the US session saw the dollar retreat the most since the onset of the pandemic. Short-term Treasury yields dropped as investors scaled back expectations of how aggressively the Fed will have to tighten monetary policy.

Crude oil held most of a jump above $91 a barrel, while Bitcoin flirted with a break past $24,000 in a sign of the brighter spirits in markets.

US headline inflation was 8.5% in July, down from the 9.1% June advance that was the largest in four decades. That’s still high and Fed officials were quick to stress more rate hikes are coming. They also signaled investors should rethink expectations of cuts next year to shore up economic growth.

“Everyone is jumping to that inference that this means the Fed can ease some,” Carol Schleif, deputy chief investment officer at BMO Family Office, said on Bloomberg Television. “It’s important to remember the Fed has communicated very clearly they want inflation down toward the 2% level. We’re far away from that. It’s a little too early to be completely risk on.”

Minneapolis Fed President Neel Kashkari said he wants the Fed’s benchmark interest rate at 3.9% by the end of this year and at 4.4% by the end of 2023.

Alluding to market pricing of the Fed’s policy path, Kashkari said it was not realistic to conclude that the Fed will start cutting rates early next year, when inflation is very likely to be well in excess of the 2% goal.

Chicago counterpart Charles Evans said inflation remains “unacceptably high.” He expects “we will be increasing rates the rest of this year and into next year.”

“The easing of financial conditions likely annoys the Fed, and we should not be surprised to see Fed speakers continue to try to talk down the market and risk assets,” said Christian Hoffmann, portfolio manager at Thornburg Investment Management.

Meanwhile in China, the central bank said it will safeguard the economy against inflation threats, pledging to avoid massive stimulus and excessive money printing to spur growth.

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What to watch this week:

  • US PPI, initial jobless claims, Thursday

  • San Francisco Fed President Mary Daly is interviewed on Bloomberg Television, Thursday

  • Euro-area industrial production, Friday

  • US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.1% as of 7:21 a.m. in Tokyo. The S&P 500 rose 2.1%

  • Nasdaq 100 futures fell 0.1%. The Nasdaq 100 rose 2.9%

  • Australia’s S&P/ASX 200 index futures jumped 1%

  • Hang Seng Index futures advanced 1.1%

Currencies

  • The Bloomberg Dollar Spot Index fell 1%

  • The euro was at $1.0298

  • The Japanese yen was at 132.94 per dollar

  • The offshore yuan was at 6.7238 per dollar

Bonds

Commodities

  • West Texas Intermediate crude was at $91.42 a barrel, down 0.5%

  • Gold was at $1,791.90 an ounce

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