Asian Stocks Poised to Gain on Benign US Inflation: Markets Wrap

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(Bloomberg) — Stocks in Asia were poised for gains Thursday after the latest US inflation report matched expectations, easing concerns about imminent Federal Reserve rate increases.

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Equity-index futures for Japan and South Korea advanced, putting a broader regional gauge on track for a second day of gains. Nasdaq 100 contracts slipped in early Asian trading after Cisco Systems Inc.’s earnings failed to impress. That followed gains in US benchmarks, with the S&P 500 coming within striking distance of a record and a rally in megacap chipmakers lifting the Nasdaq 100 to a one-month high.

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US data Wednesday showed consumer prices rose in line with forecasts in July, while a key underlying inflation measure matched its slowest pace since March 2021. Short-dated Treasuries outperformed as traders pared expectations of policy tightening, with money markets assigning less than a 50% chance of a September rate increase. US crude edged lower early Thursday to trade below $83 a barrel.

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The data offered some relief to investors after signs of a cooling labor market had already tempered expectations for rate hikes. Still, persistent price pressures and volatile oil markets are complicating the outlook, leaving traders sensitive to incoming data for clues on whether policymakers can remain on hold.

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The CPI reading and a cooler-than-expected jobs report “may keep hawkish Fed officials at bay in September,” said Gary Schlossberg, global strategist at Wells Fargo Investment Institute. “However, we remain guarded on the near-term outlook for inflation amid volatile oil prices tied to the ongoing Middle East conflict along with lingering core price pressures from a strong economy and the AI boom.”

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The consumer price index, excluding often-volatile food and energy categories, rose 0.2% in July from a month earlier. On an annual basis, it advanced 2.5%, matching the slowest pace since March 2021.

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Coming on the heels of Friday’s weak jobs report, the moderation in inflation may ease some of the pressure on Fed officials after three policymakers dissented at the July 29 meeting in favor of raising rates.

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Still, above-target inflation and widening budget deficits have helped keep longer-dated Treasury yields elevated. Thursday’s 30-year bond sale is expected to price at the highest financing rate in 25 years, after a $42 billion auction of 10-year notes drew the highest yield since 2007.

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“The big surprise with a report that had no surprises is that a situation where inflation isn’t reaccelerating, coupled with the most recent, weak jobs report gives the Fed more time to wait,” said Chris Zaccarelli at Northlight Asset Management.

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In Asia, attention will remain on the yen after the currency edged closer to the key 160-per-dollar level, keeping traders alert to the risk of further intervention by Japanese authorities.