(Bloomberg) — Stocks in Asia rallied on bets that the upcoming US consumer price report will allow the Federal Reserve to start easing in September. The New Zealand dollar slumped following a surprise rate cut by the country’s central bank.
Most Read from Bloomberg
The MSCI Asia Pacific Index climbed for a fourth session, with those in New Zealand and Taiwan jumping more than 1%. The gains came after the US producer price index rose less than forecast, helping to fuel a 1.7% rally in the S&P 500.
The easing of price pressures has bolstered confidence US officials can start lowering borrowing costs while refocusing on the labor market, which is showing greater signs of slowing. Fed Bank of Atlanta President Raphael Bostic said he’s looking for “a little more data” before supporting a reduction in rates, while reiterating he’ll likely be ready to cut “by the end of the year.”
“There’s evidently scope for upside in equities from downside surprises in inflation data, with Wall Street rallying after lower-than-expected PPI data,” said Kyle Rodda, a senior market analyst at Capital.Com. “The markets will look to the US CPI survey for confirmation that the underlying inflation pulse in the economy is diminishing.”
The Reserve Bank of New Zealand cut rates by 25 basis points to 5.25%, embarking on an easing cycle much sooner than previously indicated as the economy slumps and inflation slows. The local currency weakened 0.8% against the greenback.
Treasuries slipped after rising across the curve in the previous session, with positioning data showing traders remain bullish. A Bloomberg gauge of the dollar steadied around a four-month low.
The yen reversed losses against the dollar following a report that Japanese Prime Minister Fumio Kishida won’t run for a second term as leader of the long-ruling Liberal Democratic Party in September.
Elsewhere in Asia, Chinese stocks fell following data that showed bank loans to the real economy contracted for the first time in 19 years. Investors await earnings from Tencent Holdings Ltd. and its buyback plans.
“The Chinese internet giants reporting this week will be very important to see if consumption weakness in China weighs on margins and ROIs, and which sub-segment vertical such as gaming may be brighter spots,” said Britney Lam, head of equities-long/short at Magellan Investments Holding Ltd. “Valuation is attractive but earnings momentum is key.”
Falling Volatility
The S&P 500 saw its biggest four-day rally this year. The Nasdaq 100 climbed 2.5%. Starbucks Corp. surged 25% after ousting its chief and picking Chipotle Mexican Grill Inc.’s Brian Niccol as its next leader. In late hours, Bloomberg News reported that a bid to break up Alphabet Inc.’s Google is one of the options being considered by the Justice Department.
Wall Street’s favorite volatility gauge — the VIX — tumbled to around 18. Swap traders priced in an about 40 basis-point Fed cut in September and a total rate reduction of over 105 basis points for 2024.
The US producer price index for final demand increased 0.1% from a month earlier. The median forecast in a Bloomberg survey of economists called for a 0.2% gain. For the data due Wednesday, forecasters expect the consumer price index, and a “core” gauge excluding food and energy, to have both advanced 0.2% in July, according to the median estimates in a Bloomberg survey.
“The runway is clear for the Fed to cut rates in September,” said Jamie Cox at Harris Financial Group. “If data like this persists, the Fed will have plenty of room to cut rates further this year.”
Oil climbed in early Asia trading, rebounding from losses on Tuesday, as an industry report pointed to a sizable drop in US crude stockpiles and tensions simmered in the Middle East.
Key events this week:
-
Eurozone GDP, industrial production, Wednesday
-
US CPI, Wednesday
-
China home prices, retail sales, industrial production, Thursday
-
US initial jobless claims, retail sales, industrial production, Thursday
-
Fed’s Alberto Musalem and Patrick Harker speak, Thursday
-
US housing starts, University of Michigan consumer sentiment, Friday
-
Fed’s Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
-
S&P 500 futures were little changed as of 11:04 a.m. Tokyo time
-
Nasdaq 100 futures rose 0.2%
-
Japan’s Topix rose 1.3%
-
Australia’s S&P/ASX 200 rose 0.9%
-
Hong Kong’s Hang Seng fell 0.2%
-
The Shanghai Composite fell 0.5%
-
Euro Stoxx 50 futures rose 0.3%
Currencies
-
The Bloomberg Dollar Spot Index was little changed
-
The euro was little changed at $1.0991
-
The Japanese yen was little changed at 146.80 per dollar
-
The offshore yuan was little changed at 7.1480 per dollar
Cryptocurrencies
-
Bitcoin fell 0.1% to $60,523.38
-
Ether fell 0.4% to $2,687.25
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.
