US CPI reading and a cooler-than-expected US jobs report ‘may keep hawkish Fed officials at bay in September’, says Wells Fargo Investment
ASIAN stocks rose after a subdued US inflation report eased concerns about imminent interest rate hikes by the US Federal Reserve and Brent snapped a six-day rally.
The MSCI Asia-Pacific Index rose 0.6 per cent, with gauges in Japan and South Korea advancing. That followed gains in US benchmarks, with the S&P 500 moving within striking distance of a record as a rally in megacap chipmakers lifted the Nasdaq 100 to a one-month high.
Among the main market moves, S&P 500 futures were little changed as at 9.01 am Tokyo time. The Hang Seng futures fell 0.3 per cent, Japan’s Topix rose 0.8 per cent and Australia’s S&P/ASX 200 dropped 0.1 per cent.
Still, caution prevailed as Nasdaq 100 contracts slipped in early Asian trading after Cisco Systems’ earnings failed to impress. Cerebras Systems tumbled after sales declined at its hardware business.
US 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 in the US session as traders pared expectations of policy tightening, with money markets assigning less than a 50 per cent chance of a September rate increase.
Elsewhere, Brent crude edged lower early on Thursday (Aug 13) to trade around US$88.30 a barrel.
Attention is also on the yen as it edged closer to the key level of 160 per US dollar on Wednesday, keeping investors on the lookout for more intervention by officials in the foreign exchange market.
The US inflation data offered some relief to investors after signs of a cooling labour 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.
The consumer price (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 artificial intelligence boom.”
The CPI, excluding often-volatile food and energy categories, rose 0.2 per cent in July from June. On an annual basis, it advanced 2.5 per cent, matching the slowest pace since March 2021.
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 US$42 billion auction of 10-year notes drew the highest yield since 2007.
“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.
In other corners of the market, gold edged higher early on Thursday to trade around US$4,410 an ounce.
The US dollar was a touch weaker against most of its G10 peers, with traders remaining focused on the yen.
The yen was steady at 159.31 per US dollar early on Thursday after ending the previous session 0.1 per cent weaker. It has depreciated more than 1 per cent in August, unwinding some of the US-Japanese efforts to strengthen the yen at the turn of the month.
“Japanese authorities have already demonstrated a willingness to act, including coordinated action with the US Treasury, and levels approaching or exceeding the recent intervention zone are likely to keep traders cautious,” said Nathan Thooft at Manulife Investment Management.
“We definitely are still on intervention watch.” BLOOMBERG
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