A mixed US inflation report boosted Asian markets Thursday as it soothed fears of a possible Federal Reserve interest rate hike next week, though the still hot reading left open the possibility of one more before year’s end.
While the data did not provide the knock-out for any more tightening, analysts said traders were buoyed by the fact they had got over a major hurdle unscathed, providing much-needed support to risk assets.
Wall Street ended broadly higher, though dealers remained nervous after Wednesday’s release, which showed consumer prices picked up on the back of a surge in oil prices, while core inflation — excluding energy and food — was slightly higher than hoped but still acceptable.
The figures also got a mixed reception among analysts.
“These data are supportive of a pause in September,” said Rubeela Farooqi, at High Frequency Economics.
“However, the (policy committee) is not likely to declare victory until it sees further evidence of improvement towards the two percent target. They will remain open to further rate hikes, if needed.”
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And Neil Wilson at Markets.com said that “the implication may be that the Fed will be more minded to keep a rate hike on the table for this year even though I still think it will stand pat next week”.
However, Nationwide Life Insurance’s Kathy Bostjancic said: “The core CPI is a bit disappointing.
“This will keep the Fed on a hawkish alert and suggests a rate hike is possible in November and December.”
While readings on wholesale prices and retail sales are still to come this week, focus now turns to next week’s Fed decision, which will be pored over for possible clues about its plans for the rest of 2023.
The Fed has insisted that its decision-making would be based on incoming data, meaning any indication that prices were on their way back up will likely spook markets.
Observers said the chances of a hike next week were very low, but the odds of a November hike were about 50 percent.
Asian equities enjoyed some early buying, with markets up across the board, though the initial rally faded as the morning progressed.
“Asia has some clear air to reclaim some of the week’s losses,” said Kyle Rodda, at Capital.com.
“US inflation offered up more questions than answers, but it’s a volatility event out of the way — the proverbial can has been kicked down the road just a little.”
The European Central Bank is due to conclude its latest policy meeting later in the day, with the region facing a pick-up in cost pressures as energy prices rebound — largely because of Saudi Arabia and Russia’s output cuts — with bets on another hike growing.
Crude prices remain elevated, sitting at 10-month highs, with some analysts warning they could even break back to $100.
Key figures around 0230 GMT
Tokyo – Nikkei 225: UP 1.1 percent at 33,049.01 (break)
Hong Kong – Hang Seng Index: UP 0.3 percent at 18,061.24
Shanghai – Composite: UP 0.2 percent at 3,130.17
Dollar/yen: DOWN at 147.12 yen from 147.47 yen on Wednesday
Euro/dollar: UP at $1.0737 from $1.0733
Pound/dollar: UP at $1.2493 from $1.2490
Euro/pound: UP at 85.94 pence from 85.91 pence
West Texas Intermediate: UP 0.5 percent at $88.95 per barrel
Brent North Sea crude: UP 0.5 percent at $92.32 per barrel
New York – Dow: DOWN 0.2 percent at 34,575.53 (close)
London – FTSE 100: FLAT at 7,525.99 (close)