Asian stock markets have risen, the US dollar has eased and longer-dated bonds rallied as investors reckoned on inflation bringing forward rate hikes around the world.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.4 per cent. Japan’s Nikkei climbed one per cent.
The Shanghai Composite was marginally softer while Hong Kong markets were closed for a holiday.
Overnight figures showed another solid increase in US consumer prices, while minutes from last month’s Federal Reserve meeting showed policymakers’ growing concern about inflation and a general agreement to start tapering asset purchases soon.
Traders responded by bringing forward rate-hike expectations but lowering the projected peak.
Fed Funds futures pulled forward the first hike from late in 2022 to almost fully price a 25 basis point hike by September, but pricing also suggests rates hovering around 1.5 per cent in five years’ time.
Gold had its best session in seven months.
In the bond market short-term Treasury yields rose while long-term yields fell, flattening the curve.
Longer-term yields also fell in Asia on Thursday and the US dollar, which rallied through September, pulled back sharply with the decline in longer Treasury yields.
“The market continued to pull forward the pricing of the first rate hike while also decreasing terminal rate pricing, which we believe is a reflection of the market pricing in a policy mistake,” said analysts at TD Securities.
Overnight on Wall Street the S&P 500 rose 0.3 per cent and in early Asia trade S&P 500 futures were also up 0.3 per cent.
Wednesday’s data showed US consumer prices up 5.4 per cent year-on-year last month and suggested increases in rent were picking up steam – which along with soaring energy costs raises the risk of persistent price pressure.
In a change from readouts of recent Fed meetings, policymakers were also no longer described as “generally” expecting inflation pressures to ease.
Instead they talked about the timing and structure of reducing bond buying and the minutes said if a decision to begin tapering takes place next month, the process could begin in the middle of either November or December.
Markets are awaiting Thursday’s US producer prices and jobless claims figures as well as appearances from Bank of England and Federal Reserve policymakers.
Elsewhere, Singapore’s central bank unexpectedly tightened monetary policy, citing forecasts for higher inflation .
In China, producer prises rose at their fastest since the series began in 1996.
In Australia, a drop in employment figures and remarks from a central bank official about laggardly wages have not derailed a buildup of recent market bets on rate hikes beginning next year.
Swaps markets have priced in about 90 basis points of rises by the end of 2023 despite the Reserve Bank of Australia insisting hikes before 2024 are unlikely.
Currency markets were quiet after the US dollar’s overnight drop – its steepest fall on the euro in five months.
The euro was steady at $US1.1591 in Asia while sterling, the Australian dollar and the NZ dollar held onto Wednesday gains – as did the Chinese yuan.
The Singapore dollar touched a three-week high.
In commodities on Thursday oil futures steadied, hovering comfortably above $US80 per barrel, with US crude at $US80.55 a barrel and Brent at $US83.32.
Gold held overnight gains at $US1,789 an ounce.
The 10-year Treasury yield sat at 1.5525 per cent after falling three bps overnight and the two-year yield eased marginally to 0.356 per cent after rising 1.8 bps overnight.
Bitcoin rose 1.5 per cent to $US58,550, its highest since May.
Australian Associated Press