12-7-2023 (SINGAPORE) Asian shares inched higher on Wednesday, while the dollar reached a two-month low, as investors awaited crucial U.S. inflation data that will provide insight into the Federal Reserve’s stance on interest rate hikes.
The Japanese yen strengthened against most major currencies, reaching its highest level in a month at 139.43 against the dollar.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 0.61%, while Australia’s S&P/ASX 200 index increased by 0.54%. However, Japan’s Nikkei slid by 1%.
Economists surveyed by Reuters anticipate the consumer price index data, scheduled to be released later in the day, to show a 3.1% rise in June, following a 4% increase in May. If realized, it would be the lowest reading since March 2021.
Saxo Markets strategists stated in a note, “This data point probably will not change the Fed’s well-communicated intention to resume hiking at the July FOMC meeting.”
They added, “However, if the core CPI decelerates as anticipated, investors may continue to keep the odds for September and November rate hikes low.”
The core rate is expected to have declined for the third consecutive month to 5% from 5.3%, although this figure still exceeds the Fed’s 2% target.
According to the CME FedWatch tool, markets are pricing in a 92% chance of a 25 basis point rate hike later in the month. However, there are doubts regarding further hikes thereafter.
Fed officials have indicated their expectation to raise interest rates by at least another 50 basis points to address persistent price pressures.
In China, shares eased by 0.14%, while Hong Kong’s Hang Seng Index rose by 0.5% in early trading. China’s extension of policies to support the real estate sector until the end of 2024 has raised expectations of additional stimulus measures.
Rodrigo Catril, senior FX strategist at National Australia Bank, noted that a significant fiscal spending announcement would be necessary for the market to adopt a more positive view of China.
Investor attention will also be focused on second-quarter earnings this week, with reports expected from major Wall Street institutions, including JPMorgan, Citigroup, and Wells Fargo.
Wall Street banks are anticipated to announce higher profits for the second quarter, as increased interest payments offset a downturn in dealmaking. However, analysts have recently lowered their estimates, potentially making it easier for companies to exceed expectations.
Saira Malik, Chief Investment Officer at Nuveen, expressed caution about the optimism resulting from reduced expectations. She mentioned, “We’re mindful of mixed U.S. economic data and the potential for two more hikes this year.”
The yield on 10-year Treasury notes decreased by 1.6 basis points to 3.966%, down from an eight-month high reached on Friday.
The dollar index, which measures the U.S. currency against six major peers, fell by 0.197% to 101.40, hitting its lowest level in two months at 101.37.
The euro rose by 0.16% to $1.1024, reaching a two-month peak earlier in the session, while the sterling hit a 15-month high at $1.2940.
The Japanese yen continued its ascent, rising nearly 4% from a seven-month low recorded last month, prompting traders to monitor the possibility of intervention by Japanese authorities.
The New Zealand dollar experienced choppy trading, rising by 0.26% after the country’s central bank decided to maintain interest rates at 5.50%.
U.S. crude oil rose by 0.28% to $75.04 per barrel, while Brent crude stood at $79.60, up by 0.25% on the day.
Spot gold increased by 0.3% to $1,937.99 per ounce, while U.S. gold futures gained 0.33% to $1,937.60 per ounce.
