Nikkei up, dollar squeezed as inflation pulls forward rate hike bets

Reuters SINGAPORE | Updated on October 14, 2021

Japan's Nikkei closed flat, while Australia's S&P/ASX 200 fell 1.7 per cent. Stocks in Hong Kong and China traded either side of flat. Representative image   -  Bloomberg

MSCI Asia-Pacific share index was up 0.4%; Nikkei up 1%

Asian stock markets rose, the dollar eased and longer-dated bonds rallied on Thursday as investors reckoned on inflation bringing forward rate hike saround the world.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.4%. Japan's Nikkei climbed 1%.

The Shanghai Composite was marginally softer while Hong Kong markets were closed for a holiday.

Overnight figures showed another solid increase in US consumer prices, while minutes from last month's Federal Reserve meeting showed policymakers' growing concern about inflation anda general agreement to start tapering asset purchases soon.

Traders responded by bringing forward rate-hike expectations but lowering the projected peak. Fed Funds futures pulled forward the first hike from late in 2022 to almost fully price a25 basis point hike by September, but pricing also suggestsrates hovering around just 1.5% in five years' time.

Gold had its best session in seven months.

In the bond market short-term Treasury yields rose while long-term yields fell, flattening the curve. Longer-term yields also fell in Asia on Thursday and the dollar, which rallied through September, pulled back sharply with the decline inlonger Treasury yields and took a breather on Thursday.


Overnight on Wall Street the S&P 500 rose 0.3% and inearly Asia trade S&P 500 futures were also up 0.3%.

Wednesday's data showed US consumer prices up 5.4% on a year-on-year basis last month and that increases in rent seemedto be picking up steam - which along with soaring energy costs raises the risk of persistent price pressure.

In a change from readouts of Fed meetings over the summer,policymakers were also no longer described as "generally"expecting inflation pressures to ease.

Policymakers talked about the timing and structure ofreducing bond buying and the minutes said that if a decision tobegin tapering takes place next month, the process could beginin either the middle of November or in mid-December.

Ahead on Thursday, markets are awaiting US producer pricesand jobless claims figures as well as appearances from Bank ofEngland and Federal Reserve policymakers.


Elsewhere, Singapore's central bank unexpectedly tightened monetary policy, citing forecasts for higher inflation .

In China, producer prises rose at their fastest clip sincethe series began in 1996, data on Thursday showed.

In Australia, a drop in employment figures and remarks from a central bank official about laggardly wages haven't derailed a buildup of recent market bets on rate hikes beginning next year.

Swaps markets have priced in about 90 basis points of rate rises by the end of 2023 despite the Reserve Bank of Australiainsisting any hikes before 2024 are unlikely.

Currency markets were fairly quiet on Thursday after the dollar's overnight drop - which was its steepest fall on theeuro in five months.

The euro was steady at $1.1591 in Asia while sterling, the Australian dollar and the NewZealand dollar held onto Wednesday gains - as did theChinese yuan.

The Singapore dollar touched a three-week high.

In commodities on Thursday oil futures steadied, hoveringcomfortably above $80 per barrel, with U.S. crude at$80.55 a barrel and Brent at $83.32.

Gold held overnight gains at $1,789 an ounce.

The 10-year Treasury yield sat at 1.5525% afterfalling three bps overnight and the two-year yieldeased marginally to 0.356% after rising 1.8 bps overnight.

Bitcoin rose 1.5% to $58,550, its highest levelsince May.

Published on October 14, 2021

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