Asian stocks tracked Wall Street's gains as the latest U.S. inflation data bolstered bets on interest rate cuts by the Federal Reserve.
Stocks in Australia, South Korea and mainland China rose, while Hong Kong’s market regained gains at a post-holiday open. Most Japanese shares were higher, but pared earlier gains. S&P 500 and Nasdaq 100 futures also rose in Asia after both indexes rose more than 1% to hit fresh highs on Wednesday.
Australian and New Zealand government bond prices also rose, with Treasuries extending gains from the previous session, pushing yields lower. The yield on the 10-year note fell 10 basis points on Wednesday, while the yield on the two-year note, the most policy-sensitive bond, fell 9 basis points. The swap market now expects two rate cuts this year, up from one earlier in the year.
Weak dollar
The Bloomberg Dollar Index fell to a one-month low as the currency weakened against all its Group of 10 peers, tracking lower yields.
The yen traded at its highest level in more than a week against the dollar, adding to Wednesday’s 1 percent advance. The Japanese currency rose strongly despite data showing the economy contracted in the first quarter, with private consumption and capital spending falling.
The Australian dollar also pared gains after the country's unemployment rate for April beat the median estimate in a Bloomberg survey.
The so-called core U.S. consumer price index, which excludes food and energy costs, rose 0.3% from March, in line with all expectations but snapping a streak of three higher-than-expected readings that have raised concerns that inflation is becoming entrenched. The index slowed to its slowest pace in three years on an annual basis.
Soft landing continues
“The soft landing continues,” said Jeffrey Schultz, head of economic and market strategy at ClearBridge Investments. “The latest version should start shifting the narrative toward ‘when’ the Fed will cut in 2024 rather than ‘if’ it will.”
“We see the April reading as consistent with the direction of inflation dynamics that could lead, in the context of a moderating real economy, to a cut in September followed by a second cut in December,” said Krishna Guha of Evercore.
The latest inflation report may offer U.S. policymakers hope that inflation is resuming its downward trend, which would help pave the way for interest rate cuts. Separate retail sales data pointed to some softening in the resilient consumer demand that supports the economy.
Next Fed Meeting
The next CPI numbers will be released on the same day the Federal Reserve meets to decide on interest rates on June 12.
Minneapolis Federal Reserve President Neel Kashkari reiterated that the central bank likely needs to keep interest rates at their current level for a while longer, and questioned how much they are constraining the U.S. economy.
In corporate news, Boeing faces possible criminal prosecution after the U.S. Justice Department found the company violated a deferred prosecution agreement related to two fatal crashes half a decade ago, while Walt Disney Co. CEO Bob Iger said marketing spending on its flagship streaming service Disney+ was too high and would be cut.
Data due for release in Asia includes: industrial production in Japan and monetary policy decision in the Philippines.
Oil prices rose on a larger-than-expected draw in U.S. crude inventories. Gold prices also rose early Thursday, putting the precious metal on track for its third daily advance.
