Asia stocks surge, US dollar slumps as US inflation data boosts hopes Fed is done with rate hikes

SINGAPORE – Asian stocks leapt while

the US dollar was nursing its heaviest losses in a year

on Wednesday, as steady US inflation figures boosted investor confidence that the United States Federal Reserve was done hiking interest rates and may start cutting in early 2024.

US headline consumer prices were flat in October, against expectations for a 0.1 per cent rise.

The core consumer price index, at 0.2 per cent, also came in below a forecast of 0.3 per cent.

Japan’s Nikkei index rallied 2 per cent, while Hong Kong’s Hang Seng Index jumped 2.7 per cent and the Shanghai Composite rose 0.5 per cent.

South Korea’s Kospi index gained 2.1 per cent and Australia’s S&P/ASX 200 climbed 1.4 per cent.

In Singapore, the Straits Times Index was up 0.5 per cent at 10.55am.

“This reading will likely confirm, in our view, that the Fed is now on hold on rates,” said Nomura strategist Chetan Seth.

“Recent US labour market and inflation reports suggest an economy that is softening, but not collapsing, and bond yields and oil prices have moderated, thus reducing hard-landing risks (for the economy next year).”

Interest rate futures swung sharply higher as traders priced out any chance of further rate hikes and foresaw a cut as early as May, with some chance it could come even sooner, in March.

Two-year Treasury yields, which closely track short-term rate expectations, dived more than 22 basis points on Tuesday and held steady at 4.84 per cent in Tokyo trade on Wednesday.

Ten-year yields fell 19 basis points overnight and touched an almost two-month low of 4.43 per cent in Asia, having tumbled below support at 4.5 per cent. Yields fall when bond prices climb.

In foreign exchange trade, the US dollar suffered its heaviest selling in 12 months, with the sharpest losses against risk-sensitive currencies such as the Australian dollar.

The Aussie leapt 2 per cent overnight and was steady at US$0.6496 in Asia. The New Zealand dollar held on to a 2.2 per cent gain, at US$0.60. The euro broke above US$1.08 and even the battered yen rallied to 150.5 per US dollar.

China’s central bank on Wednesday boosted liquidity injections, although it kept the interest rate unchanged when rolling over maturing medium-term policy loans. The renminbi held near a two-month high.

In Japan, the Bank of Japan stepped back and pared its regular bond buying as markets rallied. Ten-year Japanese government bond yields hit a one-month low of 0.775 per cent.

US retail sales data are the next focus for markets, although analysts think that even a positive number is unlikely to dampen the euphoria over the prospective end of the rate hike cycle.

“With so many disinflationary forces (including softening labour markets in the US and Canada) it feels to me the market will run with this number and even a strong retail sales release… cannot derail the soft landing/1995 vibes,” Spectra Markets President Brent Donnelly said in a note. REUTERS