Stocks Climb in Asia as Traders Downplay Hot CPI: Markets Wrap

(Bloomberg) -- Shares rose in Asia, sidestepping losses on Wall Street following hotter-than-expected core inflation that heightened the focus on the Federal Reserve’s next move.

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Japanese and South Korean stocks opened higher while those in Australia slipped. US equity futures also edged higher, after the S&P 500 fell 0.2% and the Nasdaq 100 dropped 0.1% Thursday.

A gauge of US-listed Chinese companies advanced Thursday, echoing gains in China in the prior session, as investors shifted their focus to a key meeting on fiscal policy this weekend. Hong Kong markets are closed for a holiday on Friday.

Treasuries were steady in early Asian trading after the two-year yield fell six basis points and its 10-year counterpart dropped by one basis point Thursday. Australian and New Zealand yields were steady Friday.

Data released Thursday underscored the challenge facing the Fed. Underlying US inflation rose more than forecast in September in a sign of stalling progress in the fight to bring prices to target. Separate data showed applications for US unemployment benefits rose last week to the highest in over a year.

“The Fed said the last mile getting toward their inflation target is going to be tough, and that is what we are seeing,” said David Donabedian at CIBC Private Wealth US “But we still expect the Fed to cut rates by a quarter point in November, and likely a similar cut at the December meeting.”

Swaps market pricing indicating a potential Fed rate cut next month was little changed. Traders are pricing in a roughly 80% chance that the Fed will cut by 25 basis point when it meets in November. That compared with a fully priced-in move prior to last week’s strong US jobs data.

Fed policymakers John Williams, Austan Goolsbee and Thomas Barkin were unfazed by the higher-than-forecast consumer price index, suggesting officials can continue lowering rates. The outlier was Raphael Bostic of the Atlanta Fed who indicated in an interview with the Wall Street Journal that in projections released in September he had called for one additional quarter-point cut across the Fed’s two remaining meetings in 2024.

“One slightly hotter-than-expected CPI reading doesn’t mean a new wave of inflation has been unleashed, but the fact that it accompanied a jump in weekly jobless claims may add to short-term market uncertainty,” said Chris Larkin at E*Trade from Morgan Stanley.