Equities mostly climbed in Asia on Wednesday after a subdued day on Wall Street, as investors focused on the imminent release of crucial US inflation data, which could significantly impact interest rate expectations.
Following last week’s robust jobs report, indicating a resilient economy, there’s apprehension on trading floors that a third consecutive overshoot in consumer prices might prompt the Federal Reserve to postpone rate cuts.
“The consumer price index is the critical number this week,” remarked Andrew Brenner of NatAlliance Securities. “The fear is that CPI has continued to be a thorn in the side of the Fed.”
He noted that market sentiment is strongly bearish.
Expectations for rate cuts this year have diminished from six at the year’s onset to possibly three, with some even considering zero. However, some argue that no rate cuts could be the price for sustained economic health and robust earnings.
Atlanta Fed chief Raphael Bostic struck a pragmatic tone on Tuesday when discussing the bank’s strategy. While reiterating a forecast of one reduction this year, he remained open to reassessment based on incoming data.
Responding to inquiries about the possibility of maintaining rates unchanged all year, he stated, “I do think the risks are balanced, and given that the US economy has been so robust and resilient… I can’t rule out the possibility that rate cuts may need to be postponed further.”
However, he also acknowledged, “if I started to receive different signals suggesting potential labor market distress, then I’d consider altering our policy stance and possibly cutting rates sooner.”
Krishna Guha at Evercore maintained optimism ahead of the CPI reading, suggesting that “the odds are the data will come in good enough to proceed.”
On Wall Street, the S&P 500 and Nasdaq registered modest gains, while the Dow dipped marginally.
In early Asian trading, Hong Kong surged over one percent, with Sydney, Taipei, and Wellington also in positive territory, although Shanghai edged lower.
Tokyo experienced declines as a stronger yen weighed on exporters. The currency strengthened against the dollar following less-dovish comments from Bank of Japan chief Kazuo Ueda.
The yen’s exchange rate, particularly against the dollar, has been closely monitored, with many observers identifying 152 yen per dollar as a threshold prompting authorities to intervene to support the Japanese currency.
Last month, the central bank raised interest rates for the first time since 2007, as inflation remains significantly above officials’ target, fueling speculation about future moves.
Addressing lawmakers on Tuesday, Ueda noted, “We must consider scaling back monetary easing if the underlying price trend aligns with our outlook.”
