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Stocks welcome inflation relief in the US but are wary of the Fed

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By Tom Westbrook

SINGAPORE (RockedBuzz via Reuters) – Asian stocks rose on Wednesday, bonds were solid and the dollar eased losses after data showed U.S. consumer prices rose barely in November, fueling hopes that inflation has peaked and that interest rate hikes will slow and eventually stop in 2023.

Nervousness about policymakers’ next moves, however, kept the mood in check ahead of a Federal Reserve meeting later in the day and central bank meetings in Britain and Europe on Thursday. Investors are also wary of China’s reopening.

The broader MSCI index of Asia-Pacific stocks outside Japan rose 0.6%. Japan’s Nikkei rose 0.7%.

Wall Street rallied overnight, before trimming gains to leave the S&P 500 up 0.7% at the close. The dollar, which is falling off 20-year highs as US interest rate expectations decline, fell broadly and sharply, while bonds rallied.

“Stocks trimmed their gains during the session,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore, as investors mulled over some details in the inflation data and focused on the Fed’s decision expected next week. 19:00 GMT.

“I suspect it was a bit of ‘wait, guys’ next step is the (Fed) and maybe we want to take some profits and keep our positions in order.”

The US consumer price index rose 0.1% last month, 0.2 percentage points slower than economists expected, and in the 12 months to November, the headline CPI rose 7 .1%, the slowest pace in about a year.

The S&P 500 was up nearly 2.8% in one run, while the Nasdaq was up as much as 3.8% before closing up 1%. S&P 500 futures are up about 0.2% in Asia.

The yield on the benchmark 10-year US Treasury fell 11 basis points overnight and held steady at 3.4975% in early Asian trade. Two-year yields, which track short-term interest rate expectations, fell by 17.4 basis points.

The US dollar fell 1.5% against the yen after the inflation data and held steady at 135.58 yen in Asia. The US dollar index fell to a six-month low of 103.57, before stabilizing at 104.01. It is down more than 9% from the two-decade high reached in September.


Futures prices show that markets expect the Fed to slow the pace of hikes but still lift the funds rate target range by 50 basis points to 4.25% to 4.5% later Thursday.

Much of the attention therefore falls on the “dot” chart of committee members’ projections of future rate movements, and the tone Chairman Jerome Powell strikes in his news conference.

“There are clear signs now that inflation is easing, but it is still at a high level,” said Tareck Horchani, head of prime brokerage operations, at Maybank Securities in Singapore.

“The market wants to know if the Fed will change its position on the dot plot,” he said, with the median projection for September for a peak in the fed funds rate of about 4.6% next year.

Elsewhere in currency markets, the Australian dollar hit a three-month high of $0.6893 after the inflation data, before pulling back slightly to settle at $0.6829.

The euro, pound and the New Zealand dollar hit six-month highs and the euro last settled at $1.0637.

Oil was up 1% on broader sentiment, before trimming gains slightly in Asia with Brent futures at $80.22 a barrel and U.S. crude at $75.02 a barrel.

Bitcoin rebounded overnight but was unable to hold gains above $18,000.

Cryptocurrency markets have been unfazed, but paralyzed, by the arrest of FTX founder Sam Bankman-Fried, charged by US prosecutors on Tuesday with misappropriating billions of dollars of client funds.

(Editing by Simon Cameron-Moore)