Stocks up, dollar squeezed as inflation pulls forward rate hike bets

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  • The MSCI AxJ Index rose 0.4%; Nikkei up 1%
  • The Treasury yield curve flattens; Dollar rally halted
  • Fed speaker, US PPI data awaited
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SINGAPORE, Oct 14 (Businesshala) – Asian stock markets rose, easing the dollar and long-term bonds rallied on Thursday as investors pushed forward to hike rates around the world on inflation.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.4%. Japan’s Nikkei (.N225) rose 1%.

Shanghai Composite (.SSEC) was marginally softer, while Hong Kong markets remained closed for a holiday.

Overnight data showed another solid uptick in US consumer prices, while minutes from last month’s Federal Reserve meeting prompted policymakers’ growing concern about inflation and a call to start reducing asset purchases too soon. showed general agreement.

Traders reacted by raising expectations for rate hikes but lowering expected peaks. Fed funds futures pushed the first hike from the end of 2022 to an almost full 25 basis point increase through September, but pricing also shows that rates hover around just 1.5% over five years’ time. .

Best sleeping session in seven months.

Short-term Treasury yields rose in the bond market, while long-term yields fell, flattening the curve. Long-term yields in Asia also fell on Thursday and the dollar, which had rallied through September, bounced back sharply with a fall in long-term Treasury yields and respite on Thursday.

Analysts at TD Securities said, “The market continued to push forward pricing of first rate hikes, while also lowering terminal rate pricing, which we believe is a reflection of market pricing in a policy blunder.”

The S&P 500 (.SPX) was up 0.3% overnight on Wall Street, and S&P 500 futures were also up 0.3% in early trading in Asia.

Wednesday’s data showed U.S. consumer prices rose 5.4% on a year-on-year basis last month and rent hikes are picking up steam — which risks continued price pressures along with rising energy costs. Is.

In a change from a readout of Fed meetings over the summer, policymakers were no longer what they described as “generally”, expecting inflationary pressures to ease.

Policymakers talked about the timing and structure of reducing bond purchases, and the minutes said if a decision is made to start tapering next month, the process could begin in mid-November or mid-December.

Ahead of Thursday, markets await the appearance of policymakers from the Bank of England and the Federal Reserve, along with data on US producer prices and jobless claims.

policy focus

Elsewhere, Singapore’s central bank unexpectedly tightened monetary policy, citing high inflation forecasts.

In China, manufacturers grew at their fastest clip since the series began in 1996, Thursday’s data showed.

In Australia, a central bank official’s comments about sluggish employment data and sluggish wages have not derailed the build-up of recent market bets on rate hikes starting next year.

The swap markets are expected to increase in price by about 90 basis points by the end of 2023, although the Reserve Bank of Australia is unlikely to push for any increases before 2024.

Currency markets were quite calm on Thursday after the dollar’s overnight fall – its biggest fall on the euro in five months.

The euro was stable in Asia at $1.1591 while the sterling, Australian dollar and New Zealand dollar were up on Wednesday – as did the Chinese yuan.

The Singapore dollar touched a three-week high.

Oil futures in commodities were trading comfortably above $80 a barrel on Thursday, with US crude at $80.55 a barrel and Brent at $83.32.

Gold edged higher overnight at $1,789 an ounce.

The 10-year Treasury yield sat at 1.5525% after falling three bps overnight and the two-year yield rose marginally to 0.356% after rising 1.8 bps overnight.

Bitcoin rose 1.5% to $58,550, its highest level since May.

Reporting by Tom Westbrook; Editing by Edwina Gibbs

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