SINGAPORE/NEW YORK: Asian shares tracked Wall Street higher on Thursday and the dollar was soft as easing core U.S. inflation kept potential rate cuts by the Federal Reserve on the table, while the yen rose to a one-month high on rate hike bets.
Oil prices rose after a larger-than-expected decline in U.S. crude oil stockpiles added to concerns about possible supply disruptions from new U.S. sanctions on Russian energy trade.
On Wall Street, all three major indexes registered their biggest daily percentage gains since Nov. 6, the day after the U.S. presidential election buoyed by strong earnings from JPMorgan, BlackRock and Goldman Sachs.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.4%.
China’s blue chip stocks rose 0.67% while Hong Kong’s Hang Seng index surged 1.5%.
Tech-heavy Taiwan stocks rose 2% as investors await earnings from AI chipmaker Taiwan Semiconductor Manufacturing Co, Asia’s most valuable company.
Overnight, data showed the consumer price index (CPI) rose in line with expectations at an annual rate of 2.9% in December, from November’s 2.7%. But core inflation, which excludes food and energy prices, rose by 3.2%, below forecasts for 3.3%.
Investors were particularly encouraged by the latest inflation reading since data released on Tuesday showed that U.S. producer prices increased moderately in December.
“This report supports the view that the pricing out of rate cuts this year has gone a bit too far, and when the data turns lower again … some extra easing will be put back on the table,” said Kyle Chapman, FX markets analyst at Ballinger Group.
The inflation report led traders to price close-to-even odds the Fed would cut interest rates twice by the end of this year.
Shares slip in Asia, dollar firm as inflation, earnings loom
That took some steam out of the dollar against most currencies, with the dollar index , which measures the greenback against a six other units, at 109.03.
“We anticipate a shallow FOMC easing cycle, although we think short-term hawkishness is overdone,” said Eric Robertsen, Standard Chartered’s global head of research and chief strategist at a media roundtable in Singapore.
“We see a higher USD, though the path is expected to be volatile,” said Robertsen, noting the U.S. exceptionalism theme will be tested if tariffs lead to weaker growth in other regions.
Investor focus has centered on President-elect Donald Trump’s policies as he returns to the White House on Monday, with recent media reports of a gradual implementation of tariffs by the new administration easing some worries.
Analysts expect Trump’s policies to boost growth but also add to price pressures.
Japan’s yen remained on the charge, hitting its highest in nearly a month as traders price in over 70% chance the Bank of Japan raising interest rates next week after comments from Governor Kazuo Ueda.
“While we expect the normally cautious Ueda to wait for clarity on US trade policy and confirmation of strong wage growth until the BOJ’s March meeting, we acknowledge a hike is possible next week,” said Joseph Capurso, head of international economics at Commonwealth Bank of Australia.
The yen was last at 155.675 per dollar, up 0.5% on the day.
The euro was steady at $1.02965, while sterling was slightly lower at $1.22335.
U.S. Treasury yields slid after the inflation data, with the yield on benchmark U.S. 10-year notes falling 13.5 basis points to 4.653%. It was last at 4.661% in Asian hours.
In energy markets, U.S. crude rose 0.29% to $80.27 a barrel and Brent was 0.17% higher at $82.17 per barrel.
Investors will be keeping an eye on the developments in the Middle East as Israel intensified strikes on Gaza hours after a ceasefire and hostage release deal was announced to end fighting that began 15 months ago.
Spot gold hit a one month high of $2,702.09 per ounce in Asian hours after the shift in interest rate expectations.
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