Singapore, July 12 (BNA): Asian stocks rose, while the dollar fell to a two-month low on Wednesday ahead of an important US inflation report that will help gauge whether the Federal Reserve is done with its rate hike policy.
Futures indicated that risk is set to continue rising in Europe, with Eurostoxx 50 futures up 0.44%, German DAX futures up 0.36% and FTSE futures up 0.30%.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.77%, extending its gains for the third day in a row. The index rose 2% for the week and is on track for its best weekly gain in a month.
Investors focused on the inflation report later in the day, with economists polled by Reuters forecasting that the consumer price index rose 3.1% in June, following May’s 4% increase.
The base rate for the third month is expected to drop to 5% from 5.3%, although this is more than double the Fed’s target of 2%.
“I think there is some jitters ahead of the CPI,” said Shane Oliver, head of investment strategy at AMP Capital. “There is optimism that it will show another decline, but there is also awareness that core inflation has been flat.”
Oliver said markets had a nice rally during the month of June, particularly in the US, leaving them vulnerable to stalling or consolidating.
CME FedWatch showed that markets are placing a 92% probability of a Fed hike of 25 basis points later this month, but remain skeptical of further hikes after that.
Strategists at Saxo Markets said traders are likely to continue to keep odds of a rate hike in September and November low if the benchmark rate slows as expected.
Fed officials have indicated that they expect to raise interest rates by at least another 50 basis points while addressing persistent price pressures.
Investors’ attention will also be on the policy decision from the Bank of Canada, as analysts expect a second consecutive quarter-point rate hike.
In June, the central bank raised the overnight interest rate to a 22-year high of 4.75% after a five-month hiatus, saying monetary policy was not sufficiently restrictive. She then said that further moves would depend on economic data.
David Pasanese, chief economist at Bitashers, was never clear that a recession would ultimately not be necessary to bring down inflation sustainably, pointing to tightening labor markets and steady rates of inflation in the services sector.
“A big, long-standing fear among central banks is that the longer it takes to bring down inflation, the greater the risk that it will take hold,” Bassanes said in a note.
In Asia, Australia’s S&P/ASX 200 was up 0.42%, while Japan’s Nikkei was down 0.7%.
Chinese stocks fell 0.30%, while Hong Kong’s Hang Seng Index rose 1% in early trade. On Monday, China extended some of its policies to support the real estate sector until the end of 2024, raising expectations of more stimulus.
Second-quarter earnings begin this week, with results due from some of the biggest institutions on Wall Street, including JPMorgan, Citigroup and Wells Fargo.
Wall Street banks are expected to post higher profits for the second quarter as higher interest payments offset a slowdown in deal closing.
In the currency market, the dollar index, which measures the US currency against six peers, fell by 0.167% to 101.43, after falling to 101.34, its lowest level in two months.
The Japanese yen extended its rally and rose nearly 4% from a seven-month low of 145.07 touched last month, a level that put traders on alert for possible intervention by Japanese authorities. In the latest trading, it recorded 139.52 against the dollar, after touching its highest levels in a previous month of the session.
The New Zealand dollar rose 0.26% in choppy trade after the country’s central bank kept interest rates unchanged at 5.50%.
US crude rose 0.01% to $74.84 a barrel and Brent crude settled at $79.40, flat on the day.
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