Asian equities rebound ahead of key US inflation data

September 13, 2022
7:06 pm

AFP NewsNetwork

Asian equities rebound ahead of key US inflation data

Asian stocks continued their global rally on Tuesday morning ahead of key US consumer price data expected to show modest inflation in the world’s largest economy.

Shares rose in Japan, Australia, Singapore and Taiwan at the opening, with Hong Kong, South Korea and Shanghai also gaining after reopening after a bank holiday.

US Consumer Price Index (CPI) data will be released on Tuesday, with analysts expecting inflation to slow to 8 percent, mainly due to falling gasoline prices. US inflation hit a 40-year high of 9.1 percent in June.

However, the drop in inflation is unlikely to slow the pace of the US Federal Reserve’s monetary tightening as another 75 basis point rate hike is expected at its meeting next week.

The Fed has already initiated two consecutive rate hikes of this magnitude, and in recent days Bank Chairman Jerome Powell has indicated that hikes will continue until inflation is tamed.

While overall US inflation is expected to slow, food and housing prices are likely to have risen, adding to the strain on household budgets.

“Risks remain to the upside on an uncertain outlook for key inputs, including agricultural and energy commodities, and the pass-through of wage gains in a tight labor market,” Barclays US analysts Pooja Sriram and Jonathan Hill said.

Last week, the European Central Bank also introduced a tightening policy, raising interest rates by a historic 75 basis points, with analysts expecting a similarly large hike at the next monetary policy meeting in October.

– ‘Locked in’ –

US stocks ended on a bullish Monday, with the broad-based S&P 500 gaining 1.1 percent, continuing last week’s rally that started a three-week losing streak.

“Wall Street is locked into Tuesday’s inflation report, which is likely to show easing in price pressures but won’t stop the Fed from maintaining an aggressive monetary tightening stance,” said Edward Moya, senior market analyst at OANDA.

“Even if inflation falls below 8 percent, the Fed should still hike 75 basis points at the September 21 policy decision.”

The euro stabilized at 1.0125 against the dollar in early Asian trade on Tuesday, after posting a day earlier rally that saw it gain 1.4 percent against the US currency and 1.6 percent against the yen, before giving back those gains in later trading.

Oil prices fell nearly a percentage point on Tuesday as investors continue to speculate on the impact of slowing demand in overheated major markets, particularly China, where a strict zero-Covid policy continues to weigh on economic activity.

In addition to Tuesday’s US CPI numbers, other key data expected later this week will include US Retail Sales and Industrial Production on Thursday; China Home and Retail Sales and Industrial Production on Friday; and Eurozone CPI, also on Friday.