Asian Stocks Mixed as US Inflation Data Clouds Rate-Cut Outlook

Asian markets posted an uneven recovery on Friday as investors weighed policy options for global central banks following an unexpected jump in US producer prices, which reignited inflation concerns.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.2 percent after the US Bureau of Labor Statistics reported the Producer Price Index (PPI) rose 0.9 percent in July on a month-on-month basis, far exceeding economists’ forecasts.

The data prompted traders to scale back expectations of aggressive rate cuts by the US Federal Reserve in September. “What it did was to get rid of all the chat about a 50 basis point cut,” said Mike Houlahan, director at Electus Financial Ltd in Auckland.

According to the CME Group’s FedWatch tool, markets are now pricing in a 92.1 percent probability of a 25 basis point cut next month, down from a full 100 percent likelihood just a day earlier. The odds of a larger 50 basis point reduction fell to zero from 5.7 percent.

Regional Market Moves
In Japan, the Nikkei rebounded 1.6 percent to approach a record high, recovering from its sharpest decline since April on Thursday, which ended a six-day winning streak. The rally was buoyed by GDP data showing the economy expanded at an annualised 1.0 percent in the April-June quarter, beating analyst expectations. The yen strengthened 0.5 percent against the dollar to 147.09.

Australian shares climbed 0.7 percent, while Hong Kong’s Hang Seng Index dropped 1.1 percent. In mainland China, the CSI 300 index rose 0.8 percent after weaker-than-expected July retail sales and industrial production figures increased speculation of further government stimulus. Markets in India and South Korea remained closed for public holidays.

US stock futures gained 0.2 percent in Asian trading, poised for a fourth straight day of gains after a choppy Wall Street session. In the bond market, the yield on the 10-year US Treasury fell 2 basis points to 4.2732 percent, while the two-year yield eased to 3.7233 percent. The US dollar index slipped 0.2 percent to 98.026.

Crypto and Commodities
Cryptocurrencies steadied after bitcoin’s record high of $124,480.82 on Thursday faltered. The token was last up 0.8 percent, while ether rose 1.7 percent. “Bitcoin’s failure to conquer the $125,000 resistance signals another consolidation phase,” said Tony Sycamore, market analyst at IG in Sydney.

In commodities, Brent crude dipped 0.3 percent to $66.63 per barrel ahead of a meeting in Alaska between US President Donald Trump and Russian President Vladimir Putin. Gold inched 0.3 percent higher to $3,343.94 per ounce as traders assessed the outlook for real interest rates.

In early European trading, pan-regional futures, Germany’s DAX futures, and Britain’s FTSE futures all rose 0.5 percent.