Asian stocks surge, US dollar slumps as traders cheer inflation surprise
Asian markets today: MSCI's broadest index of Asia-Pacific shares outside Japan was up 1.9% in early trade. Japan's Nikkei was up 1.8%. Overnight, the Nasdaq jumped 2.4%, bonds surged, and the dollar slumped more than 1.6% on the euro.
Asian markets today: Asian stocks leapt while the dollar was nursing its heaviest losses in a year on Wednesday, as steady U.S. inflation figures boosted investor confidence that the Federal Reserve was done hiking interest rates and may start cutting early next year.
U.S. headline consumer prices were flat in October, against expectations for a 0.1% rise. Core CPI, at 0.2%, also came in below a forecast of 0.3%.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 1.9% in early trade. Japan's Nikkei was up 1.8%. Overnight, the Nasdaq jumped 2.4%, bonds surged, and the dollar slumped more than 1.6% on the euro.
"This was unequivocally good news on the inflation front," Sam Rines, managing director at research firm CORBU in Texas, said in a note to clients.
"But the relevant question now is: 'Can it get any better?'"
Interest rate futures swung sharply higher as traders priced out any chance of further rate hikes and foresaw a cut as early as May, with some chance it could come even sooner, in March.
Two-year Treasury yields, which closely track short-term rate expectations, dived more than 22 basis points (bps) on Tuesday and held steady at 4.84% in Tokyo trade on Wednesday.
Ten-year yields fell 19 bps overnight and touched an almost two-month low of 4.43% in Asia, having tumbled below support at 4.5%. Yields fall when bond prices climb.
In foreign exchange trade, the dollar suffered its heaviest selling in 12 months, with the sharpest losses against risk-sensitive currencies such as the Australian dollar.
The Aussie leapt 2% overnight and was steady at $0.6496 in Asia. The New Zealand dollar held on to a 2.2% gain, at $0.60. The euro broke above $1.08, and even the battered yen rallied to 150.5 per dollar.
The detail of the data offered extra cheer to investors, with evidence of rent rises moderating. Car prices fell, and a downtrend in six-month annualised core inflation remained intact.
"This reading will likely confirm, in our view, that the Fed is now on hold on rates," said Chetan Seth, strategist at Nomura.
"Recent U.S. labour market and inflation reports suggest an economy that is softening but not collapsing, and bond yields and oil prices have moderated, thus reducing hard-landing risks (for the economy next year)."
On the other side of the world, China's central bank boosted liquidity injections on Wednesday, although it kept the interest rate unchanged when rolling over maturing medium-term policy loans. The yuan held near a two-month high.
In Japan, the Bank of Japan stepped back and pared its regular bond buying as markets rallied. Ten-year Japanese government bond yields hit a one-month low of 0.775%.
U.S. retail sales data are the next focus for markets, although analysts think that even a positive number is unlikely to dampen the euphoria over the prospective end of the rate hike cycle.
"With so many disinflationary forces (including softening labour markets in the U.S. and Canada), it feels to me the market will run with this number, and even a strong retail sales release... cannot derail the soft landing/1995 vibes," Spectra Markets President Brent Donnelly said in a note.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
Retirement Planning: SIP+SWP combination; Rs 15,000 monthly SIP for 25 years and then Rs 1,52,000 monthly income for 30 years
Top Gold ETF vs Top Large Cap Mutual Fund 10-year Return Calculator: Which has given higher return on Rs 11 lakh investment; see calculations
Retirement Calculator: 40 years of age, Rs 50,000 monthly expenses; what should be retirement corpus and monthly investment
SBI 444-day FD vs Union Bank of India 333-day FD: Know maturity amount on Rs 4 lakh and Rs 8 lakh investments for general and senior citizens
EPF vs SIP vs PPF Calculator: Rs 12,000 monthly investment for 30 years; which can create highest retirement corpus
Home loan EMI vs Mutual Fund SIP Calculator: Rs 70 lakh home loan EMI for 20 years or SIP equal to EMI for 10 years; which can be easier route to buy home; know maths
08:47 AM IST