Stocks pare gains; dollar steady before CPI data: markets wrap

Stocks in Asia came off their session highs as investors redirected their focus toward US inflation data that may shape the outlook for interest-rate hikes into next year.

An Asian equity benchmark pared gains, after an earlier advance that was spurred by Hong Kong’s decision to scrap its three-day Covid monitoring period for arriving travelers. US and European futures rose.

The dollar was little changed. Treasury yields inched lower after gains on Monday that sent the 10-year rate to above 3.6%. Yields for benchmark government bonds in Australia, New Zealand and Japan ticked higher.

Investors will be closely watching the consumer price figures later Tuesday, which are expected to remain elevated even as the rate of increase slows. A subdued CPI print would justify the Federal Reserve’s projected half-point move on Wednesday and shed light on whether markets can expect rate cuts in late 2023.

IG Australia said it saw potential for a 2%-3% initial rally in the S&P 500 and a dollar sell-off in the event that headline inflation comes in a range of 7%-7.2%.

“If headline came in lower, say high 6s, we could see an initial 5% rally in the S&P 500, with scope for similar gains again into year-end, amplified by low liquidity and bullish seasonals,” said Tony Sycamore, a market analyst at IG Australia.

Other central banks are also set to announce their final rate decisions of the year this week. The European Central Bank will announce its rate decision Thursday, and may also opt for a half-point hike. Markets will also contend with decisions from the Bank of England and monetary authorities in Mexico, Norway, the Philippines, Switzerland and Taiwan.

Still, BlackRock Investment Institute thinks markets are “wrong” to expect central banks to come to the rescue with rate cuts in light of recessions.

“The US equity rally and yield curve inversion show that markets are clinging to central banks’ old recession playbook,” a team of BlackRock analysts wrote in a note. “We think stocks could fall again if markets stop expecting policy easing. The gap between market expectations and the Fed’s intentions will start to close over time, in our view.”

Investors are also weighing the impact of Japan and the Netherlands agreeing in principle to at least partially join the US in increasing controls over the export to China of advanced machinery to make semiconductors. Trading of Asian semiconductor stocks was mixed on the news.

Elsewhere, oil advanced for a second day on signs of further easing of China’s Covid restrictions and as a key North American pipeline remained shut. Gold rose.

Key events this week:

• US CPI, Tuesday
• FOMC rate decision and Fed Chair news conference, Wednesday
• China medium-term lending, property investment, retail sales, industrial production, surveyed jobless, Thursday
• ECB rate decision and ECB President Lagarde briefing, Thursday
• Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
• US cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
• Eurozone S&P Global PMI, CPI, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 2:57 p.m. Tokyo time. The S&P 500 rose 1.4%
• Nasdaq 100 futures rose 0.1%. The Nasdaq 100 gained 1.2%
• Japan’s Topix index rose 0.5%
• Hong Kong’s Hang Seng Index rose 0.8%
• China’s Shanghai Composite Index rose 0.2%
• Australia’s S&P/ASX 200 Index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.1% to $1.0551
• The Japanese yen was little changed at 137.57 per dollar
• The offshore yuan rose 0.1% to 6.9817 per dollar

Cryptocurrencies

• Bitcoin was little changed at $17,184.44
• Ether fell 0.2% to $1,272.34

Bonds

• The yield on 10-year Treasuries declined one basis point to 3.60%
• Japan’s 10-year yield rose 0.5 basis point to 0.25%
• Australia’s 10-year yield advanced two basis points to 3.40%

Commodities

• West Texas Intermediate crude rose 1.3% to $74.15 a barrel
• Spot gold rose 0.2% to $1 785.60 an ounce