Europe Futures, Asia Stocks Edge Higher Before CPI:
- Risk sentiment supported by wagers that US inflation will ease
- Yen rallies on report BOJ will examine side effects of policy
European futures and Asian equities rose Thursday as traders wagered that US inflation is cooling, reducing pressure for aggressive rate hikes from the Federal Reserve.
An index of the Asian shares climbed for a ninth time in 10 days as it headed for the highest level in about five months. A drop in Hong Kong-listed technology companies pulled the gauge down from its earlier high.
The yen rallied on a report that the Bank of Japan will look into the side effects of its ultra-loose monetary policy. Japanese government bond futures slid to the lowest since 2014 and the yield on the nation’s benchmark 10-year debt sat hard against the BOJ’s 0.5% ceiling.
Treasuries were little changed after gains in the US session while a gauge of dollar strength declined slightly as investors looked beyond the drumbeat of hawkish comments from Federal Reserve officials.
Traders also appeared to be downplaying a potentially miserable stretch of earnings and the specter of a recession as they focus on the US consumer price index report due later Thursday.
“Continued rerating triggered by improved sentiment is carrying markets higher,” said Lorraine Tan, equity research director at Morningstar Asia. “Inflation pressure is easing and interest rates should be peaking within the next six months.”
Every aspect of CPI will be scrutinized, with extra attention on core inflation, which excludes food and energy and is seen as a better indicator than the headline measure. The projected 5.7% increase would be well above the Fed’s goal, helping explain its intention of keeping rates higher for longer. But the year-over-year price growth would also show moderation.
Futures for the Nasdaq 100 were steady up after the technology sector, one of the most-beaten down groups during the Fed’s tightening campaign led gains among US shares on Wednesday. Contracts for the S&P 500 were little changed. Those for the Euro Stoxx 50 rose about 0.4%.
“The last two months have shown that big swings in US CPI can spark significant volatility in the equity markets, given the large amounts of hedging flows and short-term options covering,” Saxo Capital Markets strategists including Charu Chanana wrote in a note. “With a big focus on CPI numbers again this week, similar volatility cannot be ruled out.”
Inflation data for China showed factory-gate prices falling more than expected in December and consumer prices ticking up as the end of Covid Zero snarled manufacturing operations but eliminated mobility curbs on people. The offshore yuan fluctuated while remaining near Wednesday’s closing level.
While Chinese assets have been top performers globally in recent months, many large foreign investors are wary of trusting the government given the regulatory shocks of 2022.