Asian markets saw gains on Thursday following a mixed U.S. inflation report, which eased concerns about an imminent interest rate increase by the Federal Reserve. However, the report’s still high inflation numbers left the door open for a rate hike later in the year.
Relief Over Inflation Report
The Asian markets found relief in the U.S. inflation report as it reduced worries about the Federal Reserve raising interest rates in the coming week. While the report did not provide a clear signal for further tightening, it was seen as a positive outcome for risk assets.
Wall Street’s Response
Wall Street reacted positively to the inflation report, with markets ending the day mostly higher. However, there remained a degree of nervousness among traders following the report. It showed that consumer prices had increased due to rising oil prices, and core inflation (excluding energy and food) was slightly higher than expected but still within acceptable limits.
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Analysts had mixed reactions to the data. Rubeela Farooqi from High Frequency Economics believed that the data supported a pause in rate hikes in September. However, she noted that the policy committee might wait for further evidence of progress toward its inflation target before ruling out further rate increases.
Neil Wilson at Markets.com suggested that the Federal Reserve might still consider a rate hike later in the year, even though it was unlikely to do so in the upcoming meeting. This could keep the Fed cautious and potentially lead to rate hikes in November or December.
Focus on the Fed
With readings on wholesale prices and retail sales still pending for the week, attention turned to the Federal Reserve’s decision next week. This decision will be closely scrutinized for any hints about the Fed’s plans for the remainder of 2023. The Fed has emphasized that its decisions will be data-driven, and any signs of rising prices could unsettle markets.
Asian Market Performance
Asian equities experienced initial gains, with markets generally moving upward. However, the early rally lost momentum as the morning progressed.
European Central Bank Meeting
The European Central Bank was set to conclude its policy meeting later in the day. The region faced increasing cost pressures due to rising energy prices, driven in part by output cuts by Saudi Arabia and Russia. This led to growing expectations of another rate hike by the ECB.
Crude Oil Prices
Crude oil prices remained high, reaching 10-month highs, and there were warnings that they could potentially rise to $100 per barrel.
- Key Figures as of 0230 GMT
- Tokyo – Nikkei 225: Up 1.1% at 33,049.01
- Hong Kong – Hang Seng Index: Up 0.3% at 18,061.24
- Shanghai – Composite: Up 0.2% at 3,130.17
- Dollar/yen: Down at 147.12 yen from 147.47 yen on Wednesday
- Euro/dollar: Up at $1.0737 from $1.0733
- Pound/dollar: Up at $1.2493 from $1.2490
- Euro/pound: Up at 85.94 pence from 85.91 pence
- West Texas Intermediate: Up 0.5% at $88.95 per barrel
- Brent North Sea crude: Up 0.5% at $92.32 per barrel
- New York – Dow: Down 0.2% at 34,575.53 (close)
- London – FTSE 100: Flat at 7,525.99 (close)