Asian Stocks to Sidestep Wall Street Dip After CPI: Markets Wrap

(Bloomberg) — Asian equities were set to ignore losses in their US peers after hotter-than-expected core inflation and a slowdown in the labor market fueled debate about a potential Federal Reserve interest-rate cut next month.

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Equity futures for Japan shares rose on Friday while those for Australia were little changed. Hong Kong markets are closed for a holiday. A gauge of US-listed Chinese companies edged higher Thursday, echoing gains in China in the prior session, as investors shifted their focus to a key meeting on fiscal policy this weekend.

The S&P 500 fell 0.2% and the Nasdaq 100 dropped 0.1% Thursday. Treasuries yields were mixed with the short end falling and long bonds remaining largely unchanged. The US two-year yield fell six basis points while the 10-year yield fell one.

Inflation data released Thursday underscored the challenge facing the Fed. Underlying US inflation rose more than forecast in September in a sign of stalling progress in the fight to bring inflation to target. Separate data showed applications for US unemployment benefits rose last week to the highest in over a year.

“The Fed said the last mile getting toward their inflation target is going to be tough, and that is what we are seeing,” said David Donabedian at CIBC Private Wealth US “But we still expect the Fed to cut rates by a quarter point in November, and likely a similar cut at the December meeting.”

Swaps market pricing indicating a potential Fed rate cut next month was little changed. Traders are pricing in a roughly 80% chance that the Fed will cut by 25 basis point when it meets in November. That compared with a fully priced-in move prior to last week’s strong US jobs data.

Fed policymakers John Williams, Austan Goolsbee and Thomas Barkin were unfazed by the higher-than-forecast consumer price index, suggesting officials can continue lowering rates. The outlier was Raphael Bostic of the Atlanta Fed who indicated in an interview with the Wall Street Journal that in projections released in September he had called for one additional quarter-point cut across the Fed’s two remaining meetings in 2024.

“One slightly hotter-than-expected CPI reading doesn’t mean a new wave of inflation has been unleashed, but the fact that it accompanied a jump in weekly jobless claims may add to short-term market uncertainty,” said Chris Larkin at E*Trade from Morgan Stanley.

“These weren’t good numbers — but that doesn’t mean they upended the larger outlook for solid economic growth and moderate inflation,” Larkin added.

In currency markets, the yen was steady at around 148 per dollar after strengthening on Thursday. An index of the dollar was little changed Thursday, reflecting broadly lower US yields. Oil resumed a rally with West Texas Intermediate futures climbing 3.6% Thursday as traders awaited Israel’s response to Iran’s missile attack.

In Asia, data set for release includes industrial production in India, an interest rate decision in South Korea, and Japan September money stock figures.

China Stimulus

China may deploy as much as 2 trillion yuan ($283 billion) in fresh fiscal stimulus as Beijing seeks to shore up the world’s No. 2 economy and boost confidence, investors and analysts said.

The funds, potentially raised by selling more government bonds, could be announced as soon as Saturday by the country’s finance minister in a highly anticipated briefing, according to a Bloomberg survey.

Chinese stocks jumped on Thursday after the release of details on stimulus measures, with China’s central bank setting up a swap facility to provide liquidity to institutional investors to buy stocks.

“Government agencies are now expected to feel the pulse of the market before publishing policies,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. “They should avoid letting expectations climb and crash to deal a blow to market sentiment.”

Key events this week:

JPMorgan, Wells Fargo kick off earnings season for the big Wall Street banks, Friday
US PPI, University of Michigan consumer sentiment, Friday
Fed’s Lorie Logan, Austan Goolsbee and Michelle Bowman speak, Friday

Some of the main moves in markets:

Stocks