Strong Open Eyed After US Inflation Fluctuations – Reuters

By Jamie McGeever

A look at the day ahead in Asian markets reveals a continuing sense of uncertainty among investors, particularly in response to recent U.S. inflation figures. This volatility has raised questions about whether the Federal Reserve may opt for a 25 or 50 basis point cut in interest rates during their upcoming meeting.

As U.S. markets closed, both the S&P 500 and Nasdaq experienced solid gains, marking their third consecutive daily increase. The ‘fear index’ also fell for the third day in a row, while Treasury yields rebounded from recent lows, ending the day higher across the board.

The Consumer Price Index (CPI) data presented mixed signals, contributing to the bond market’s fluctuations. Core inflation rose by an unexpected 0.3%, while the annual headline inflation rate decreased to 2.5%, its lowest level since February 2021.

In Asia, a robust market opening is anticipated on Thursday, with Japanese futures suggesting a rise of about 1.5%.

On Wednesday, the Japanese yen reached its highest value against the dollar this year, following comments from Bank of Japan (BOJ) board member Junko Nakagawa, who indicated that the central bank would consider raising rates if inflation aligns with forecasts. This sentiment echoed previous statements by BOJ Governor Kazuo Ueda, suggesting a sensitivity in the market regarding the potential narrowing of the interest rate gap between the U.S. and Japan. While further rate hikes from the BOJ are expected to be modest—projected at a mere 25 basis points by the end of next year—any signal of tightening policy during periods of global market instability continues to support the yen.

Eyes will be fixed on Japan’s wholesale price inflation data for August, expected to show a drop in the annual rate to 2.8% from 3.0% in July, while the monthly rate is anticipated to fall to 0.0% from 0.3%. July saw the wholesale price index reach a record high for the eighth consecutive month.

Additionally, Indian inflation figures are also closely watched. Economists predict consumer price inflation will hold steady at a five-year low of 3.5% for August, which would be the second month in a row below the Reserve Bank of India’s medium-term target of 4.0%. Nevertheless, the weakening rupee may prevent complacency among policymakers. A separate poll indicated an average inflation rate of 4.2% for this quarter, with expectations for it to rise to 4.5%-4.7% in subsequent quarters, surpassing the central bank’s target. Consequently, money markets are pricing in only a single quarter-point rate cut from the Reserve Bank of India this year.

Key developments that could shape Asian markets on Thursday include:

• Japan’s wholesale inflation data for August
• India’s consumer price inflation for August
• India’s industrial production data for July