HONG KONG: Asian stocks climbed following a tepid US session as traders awaited key inflation data that may shed light on the path of Federal Reserve rates over the coming months.
The MSCI Asia Pacific Index gained 0.4%, up for a second session, led by gains in Japan and South Korea. US equity futures were little changed.
Chinese stocks may extend gains as a gauge of US-listed mainland shares rose more than 2% after Bloomberg reported Donald Trump’s incoming team is considering gradual tariff hikes.
The dollar steadied after dropping for the first time in six sessions following the tariff report, and as data showed that US wholesale inflation unexpectedly cooled.
A bigger focus is on the consumer price index due today, which is likely to cause further ripples through global markets after traders pushed back bets on Fed easing following signs of a robust US economy.
"All eyes are now on Wednesday’s CPI report, which may be the most important inflation reading in recent memory, as it will fuel the market’s Fed-obsessed sentiment,” said Chris Brigati at SWBC.
"A strong inflation number adds to this idea of no cuts in 2025, and potentially even a rate hike, while a weak inflation data point may help to calm the market’s Fed fears.”
Underlying US inflation probably cooled only a touch at the close of 2024 against a backdrop of a resilient job market and steadfast economy, supporting the Fed’s go-slow approach to further rate cuts.
The 10-year Treasury yield fell one basis point in early Asia trading. Some bond traders are betting that the relentless selloff in Treasuries will soon lose momentum, in part because of questions around how President-elect Donald Trump’s policies will take shape. Australian bonds slipped.
Elsewhere in Asia, Bank Indonesia is expected to keep its key rate at 6% after it made repeated interventions to stabilise its currency over the past month.
"The uncertain global environment presents additional complexity to the region’s central banks fiscal and monetary dynamics,” said Alicia Chu, a portfolio manager at Standard Chartered Plc in Singapore.
"With this backdrop, BI may extend its rate pause with 50 basis points of rate cuts pushed back to H2 2025.”
In South Korea, authorities made a second attempt to arrest impeached president Yoon Suk-yeol over his short-lived martial law decree in December.
Eurozone industrial production data is due ahead of the US inflation reading. Wall Street is also gearing up for the unofficial start of the earnings season, with results from big banks hitting the tape on Wednesday.
Lenders including JPMorgan Chase & Co. and Wells Fargo & Co. are expected to show continued gains from trading and investment banking, which helped offset net interest income declines caused by higher deposits and sluggish loan demand.
"When it comes to big-bank earnings, net interest income is the key data point to watch,” Brigati at SWBC said.
"If banks have been able to take advantage of borrowing at cheaper rates versus their loan portfolio, this is a constructive sign for the coming year.”
In commodities, oil gained after slipping from a five-month high Tuesday as Hamas and Israel tentatively agreed to a cease-fire, cooling a rally fuelled by risks to Russian and Iranian supplies. Gold was steady. - Bloomberg
