SYDNEY: Asian shares rose on Wednesday after soft U.S. producer prices data stirred hopes that consumer price inflation would be benign, while the kiwi dollar slumped after its central bank cut rates for the first time since early 2020.
European stock futures point to a higher open as data showed British inflation rose less than expected in July. EUROSTOXX 50 futures extended earlier gains to be up 0.5% and FTSE futures gained 0.6%. U.S. equity futures were flat.
Adding to the busy news flow in Asia was an announcement that Japanese Prime Minister Fumio Kishida would step down as ruling party leader in September, ending a three-year term marked by rising prices and marred by political scandals.
The Japanese yen and the Nikkei wobbled after Kishida’s resignation. The yen was last off 0.2% and the Nikkei rose 0.6%, pulling further away from the lows hit after last week’s massive selloff.
The kiwi dollar slumped 1.1% after the Reserve Bank of New Zealand cut interest rates by 25 basis points to 5.25% and signalled more easing to come. That was a year earlier than its own projections.
“The RBNZ faced a tricky decision today – turning points are always difficult. But the Committee decided they had sufficient confidence in the inflation outlook to start easing monetary conditions,” said Sharon Zollner, chief economist at ANZ.
Asia shares on the rise ahead of US inflation data
“Now the RBNZ has started cutting, a 25bp cut at each meeting is the default, so we’ve pencilled that in as our own forecast for now, down to a low of 3.5% as before.”
MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.4%. Most markets rose but China was an exception, with both Hong Kong’s Hang Seng and mainland blue chips down 0.5%.
Wall Street rebounded strongly after data showed U.S. producer prices rose by less than expected in July, suggesting inflation continued to moderate.
That led markets to nudge up the chance of an outsized half-point rate cut from the Federal Reserve in September to 53% from 50% a day earlier, according to the CME FedWatch Tool.
Goldman Sachs lowered their expectations for the core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred gauge of inflation, to be up 0.14% in July, moderating from the previous forecast of 0.17%.
Investors now await all-important consumer price figures for July later in the day where economists look for rises of 0.2% in both the headline and core, with the annual core slowing a tick to 3.2%.
“Risk will find buyers if additional implied rate cuts are driven by a reduced inflation dynamic,” said Chris Weston, head of research at Pepperstone.
“However, the opposite is true if any additional rate cuts are driven by weaker growth or poor labour market readings – this week’s U.S. retail sales report could therefore be influential on that thesis.”
U.S. bonds saw solid buying overnight with two-year yields at 3.9392%, having fallen seven basis points in the offshore session.
Ten-year Treasury yields held at 3.8465% after a drop of 5 bps overnight.
The U.S. dollar was dragged lower by falling bond yields. It edged 0.1% up to 102.70 against its major peers, having fallen 0.5% overnight.
The euro jumped 0.6% overnight and was last at $1.0988, nearing a major resistance level of $1.1.
In commodities, crude oil recovered some of the previous day’s losses as estimates showed shrinking U.S. crude and gasoline inventories. They had been on a winning streak on concerns about an imminent attack from Iran on Israel.
Brent crude futures rose 0.7% to $81.23 a barrel, while U.S. West Texas Intermediate crude also gained 0.7% to $78.93.
Gold prices were 0.1% higher at $2,461.72 an ounce.
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