Asian stocks take US inflation numbers in their stride
Tokyo — Asian stocks gained on Thursday after Wall Street brushed aside strong US inflation data and surged, in a move that also saw the dollar pinned at two-week lows even as treasury yields jumped in anticipation of more rapid US interest rate increases.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1%. Australian stocks climbed 0.9% and South Korea’s Kospi added 1.1%. Japan’s Nikkei advanced 1.3% following three successive days of losses that took it to a four-month low the previous day.
Wall Street surged on Wednesday, with the Dow up 1% and the S&P 500 climbing 1.34%, as investors shrugged off the stronger than expected inflation data and snapped up shares of Facebook, Amazon.com and Apple.
US consumer prices rose more than forecast in January as Americans paid more for petrol, rental accommodation and healthcare, further raising inflation concerns and the prospect of the Federal Reserve increasing interest rates more than initially expected.
That drove US treasury yields on most maturities higher on Wednesday, with those on benchmark 10-year notes hitting a four-year high.
Other data on Wednesday showed US retail sales fell 0.3% in January to mark the biggest decline in 11 months.
This was well below forecasts for an increase of 0.2%, suggesting slower growth could accompany higher inflation.
"The combination of stellar US CPI and weak retail sales data leaves investors in a precarious situation," wrote strategists at CitiFX.
"Strong price data presents hawkish risks for the Fed’s dots at the March meeting. Three dots have been the baseline and now four seems a greater risk. Meanwhile, retail sales results have caused a downgrade of GDP estimates across the Street."
Dot plots represent Fed officials’ expectations for interest rate increases.
The dollar index against a basket of currencies slipped 0.25% to 88.892 after losing more than 0.6% overnight despite the strong inflation number. The recovery in broader risk sentiment was seen weighing on the dollar, which had gained during the market turmoil earlier in the month.
The US currency has been buffeted by a variety of setbacks this year, including prospects Washington might pursue a weak dollar strategy and the perceived erosion of its yield advantage as other countries part with easier monetary policy. Concerns about the growing US fiscal deficit have also weighed on the greenback.
The dollar stretched overnight losses against the Japanese yen to touch a 15-month low of ¥106.420, having declined more than 2% so far this week and causing the Nikkei to underperform its global peers.
"Japanese stocks could act as drag to their regional counterparts if the stronger yen hampers its performance. In that respect the strong yen could be seen as a factor preventing the stabilisation in global markets," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
The euro extended gains to reach a 10-day high of $1.2473 after surging 0.8% the previous day.
The Australian dollar added to the previous day’s rally and reached a 10-day top of $0.7946.
In commodities, Brent crude futures were up 0.75% at $64.84 a barrel after prices surged the previous day as US crude stocks rose less than expected and Saudi Energy Minister Khalid al-Falih said major oil producers would prefer tighter markets than end supply cuts too early.
Crude also benefited from the dollar’s weakness. Oil tends to move inversely to the dollar, and has also of late been trading in tandem with stocks.