SINGAPORE- Asian stock markets rose, the dollar eased and longer-dated bonds rallied on Thursday as investors reckoned on inflation bringing forward rate hikes around the world.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.4 percent. Japan’s Nikkei climbed 1 percent.
The Shanghai Composite was marginally softer while Hong Kong markets were closed for a holiday.
Overnight figures showed another solid increase in US consumer prices, while minutes from last month’s Federal Reserve meeting showed policymakers’ growing concern about inflation and a general agreement to start tapering asset purchases soon.
Traders responded by bringing forward rate-hike expectations but lowering the projected peak. Fed Funds futures pulled forward the first hike from late in 2022 to almost fully price a 25 basis point hike by September, but pricing also suggests rates hovering around just 1.5 percent in five years’ time.
Gold had its best session in seven months.
In the bond market short-term Treasury yields rose while long-term yields fell, flattening the curve. Longer-term yields also fell in Asia on Thursday and the dollar, which rallied through September, pulled back sharply with the decline in longer Treasury yields and took a breather on Thursday.
“The market continued to pull forward the pricing of the first rate hike while also decreasing terminal rate pricing, which we believe is a reflection of the market pricing in a policy mistake,” said analysts at TD Securities.
Overnight on Wall Street the S&P 500 rose 0.3 percent and in early Asia trade S&P 500 futures were also up 0.3 percent.
Wednesday’s data showed US consumer prices up 5.4 percent on a year-on-year basis last month and that increases in rent seemed to be picking up steam – which along with soaring energy costs raises the risk of persistent price pressure.
In a change from readouts of Fed meetings over the summer, policymakers were also no longer described as “generally” expecting inflation pressures to ease. – Reuters