Asian stocks drop with oil rally, US CPI in focus: Markets wrap

Stocks fell across Asia as oil prices extended gains ahead of a key US inflation report that may give a better guide on Federal Reserve’s policy outlook.

An Asian equity gauge headed for the lowest close in almost a week, with tech firms in Japan and China leading the drop in a sign of nervousness about a potential consensus-beating US consumer price reading. The sector’s weakness prompted Hong Kong and mainland Chinese shares to swing to losses even as developers rallied on news that Country Garden Holdings Co. won creditor support to extend repayment on seven yuan bonds.

US stock futures edged lower after a rout in technology companies Tuesday saw the Nasdaq 100 slide 1.1%. Apple Inc., which unveiled the iPhone 15 and other products, dropped almost 2%.

West Texas Intermediate rose for a second day and Brent extended gains above $92 per barrel as production cuts by leaders of OPEC+ added to projections for the tightest supply in a decade. The advance added to concern about inflation.

Treasury two-year yields, which are more sensitive to Fed policy than longer maturities, stayed firm above 5%, while their 10-year peers held at 4.28%. A US 10-year auction Tuesday drew the highest yield since 2007 as investors demand extra compensation for elevated inflation and rising debt issuance.

The dollar traded in narrow ranges against its Group-of-10 peers ahead of the CPI data. The yen weakened for a second day, eroding a rally Monday following Bank of Japan Governor Kazuo Ueda’s comments on the possibility of ending negative interest rates.

“Even if negative interest rate policy’s exited faster than our central case, I think that will be insufficient to stop the yen weakening unless US yields are also falling,” said Sam Lynton-Brown, head of global macro strategy at BNP Paribas SA.

German bund futures slipped in Asian trading on a report that the European Central Bank expects inflation in the euro zone to remain above 3% next year. The euro was little changed.

The news “raises the possibility of a hawkish hike by the ECB that would be much more supportive for the euro,” said Steven Englander, head of global G-10 FX research and North America strategy for Standard Chartered Bank.

The ECB is set to make a decision on rates on Thursday.

September pause

Wednesday’s consumer-price index in the US is expected to show a pick-up in inflation pressures. Swap traders are currently betting the Fed will stay on hold at a policy meeting next week, and see roughly a 50% chance it delivers a hike in November.

If core inflation comes in at 4.5% annually or higher, this would imply that core inflation remains stickier than hoped, said Tony Sycamore, a market analyst at IG Australia Pty in Melbourne “The US dollar will fly, and the S&P 500 will board the express train back to the August low 4,350/30 area.”

There’s been a “dramatic shift” in investors’ equity allocation, namely a rush toward the US and an exodus from emerging markets, Bank of America Corp.’s latest global fund manager survey showed.

That’s had an impact on emerging-markets equity allocation, which fell to a net 9% overweight in September from 34%, the lowest reading since November 2022. In contrast, allocation to US equities rose 29 percentage points to a net 7% overweight — the first overweight reading since August last year, according to the survey.

Key events this week:

• Eurozone industrial production, Wednesday
• UK industrial production, Wednesday
• US CPI, Wednesday
• Tech leaders including Tesla’s Elon Musk and Meta Platforms’ Mark Zuckerberg are set to attend a forum on the future of AI convened by Senator Chuck Schumer, Wednesday
• Japan industrial production, Thursday
• European Central Bank policy meeting and news conference by President Christine Lagarde, Thursday
• US retail sales, PPI, business inventories, initial jobless claims, Thursday
• China property prices, retail sales, industrial production, Friday
• US industrial production, University of Michigan consumer sentiment, Empire Manufacturing index, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.2% as of 1:06 p.m. Tokyo time. The S&P 500 fell 0.6%
• Nasdaq 100 futures fell 0.1%. The Nasdaq 100 fell 1.1%
• Japan’s Topix index fell 0.3%
• Hong Kong’s Hang Seng Index fell 0.2%
• China’s Shanghai Composite Index fell 0.9%
• Australia’s S&P/ASX 200 Index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0748
• The Japanese yen fell 0.2% to 147.34 per dollar
• The offshore yuan rose 0.1% to 7.2921 per dollar
• The Australian dollar fell 0.3% to $0.6405

Cryptocurrencies

• Bitcoin fell 0.7% to $25,889.58
• Ether fell 0.6% to $1,589.9

Bonds

• The yield on 10-year Treasuries was little changed at 4.28%
• Japan’s 10-year yield declined one basis point to 0.695%
• Australia’s 10-year yield declined two basis points to 4.15%

Commodities

• West Texas Intermediate crude rose 0.2% to $89.04 a barrel
• Spot gold fell 0.2% to $1 909.81 an ounce