SYDNEY (Reuters) – Asian shares rose on Monday after a moderate U.S. inflation reading restored some hope for more monetary easing next year, while there was relief that Washington avoided a government shutdown.
After the boom caused by the central bank's recent decisions, this week has become quieter with only the minutes of a few of those meetings awaited. No Fed speeches and US data are of secondary importance.
Otherwise, the themes were largely the same, with the dollar supported by a relatively strong economy and rising bond yields, which in turn is a drag on commodities and gold.
It also poses a headache for emerging market countries, which are forced to intervene to prevent their currencies from falling too high, which exacerbates domestic inflation.
For now, the glow from the US inflation report was enough to lift MSCI's broadest index of Asia-Pacific shares outside Japan by 0.3%.
The South Korean index rose by 0.7% and 0.9%.
Nasdaq futures rose 0.3%, while futures rose 0.4%. The Nasdaq was down nearly 2% last week and 1.8%, though the latter is still up 30% on the year.
Analysts at Bank of America noted that the S&P 500 was up 23% for the year, but if the 12 largest companies were excluded, the gains were only 8%. Such intense focus will be a weakness until 2025, they warn.
Wall Street rose on Friday when a key measure of core U.S. inflation came in at a lower-than-expected 0.11%, providing a partial antidote to the Federal Reserve's policy earlier in the week.
Fed funds futures rose to suggest a 53% chance of a rate cut in March and 62% in May, although they only included a quarter-percentage point easing to 3.75% to 4.0% throughout 2025. A few months ago, the market was hoping that interest rates would reach around the 3.0% level.
The prospect of smaller cuts has combined with expectations of increased government spending to finance debt to pressure bond markets, with 10-year bond yields rising by about 42 basis points in just two weeks in the biggest such increase since April 2022.
“The recent rise in core inflation has interacted with the growing threat of tariffs and immigration restrictions to temper the Fed’s optimism about inflation,” noted Michael Feroli, an economist at JPMorgan.
“Given our inflation and unemployment outlook, we continue to look at 75 basis points of cuts next year with a flat rate in January and a quarterly pace thereafter.”
In currency markets, the price settled near two-year highs at 107.970 after rising 1.9% during the month so far. The euro looked weak at $1.0432 after testing support again around $1.0331/43 last week. (USD/)
The dollar was steady at 156.44, having risen 4.5% so far in December, but faces further threats of Japanese intervention if it challenges the 160.00 barrier.
The strong dollar combined with rising bond yields weighed on gold, which reached $2,624 an ounce after falling 1% last week. (ghoul/)
The stronger dollar is also a drag on oil, which is already hampered by concerns about Chinese demand following last week's dismal retail sales numbers. (or)
It rose 4 cents to $73.00 per barrel, while it rose 12 cents to $69.58 per barrel.
