(Nov 11) : Asian stocks and bonds were poised to fall after hotter-than-expected US inflation drove losses on Wall Street and fueled bets that the Federal Reserve may hike interest rates more aggressively to tame prices.
Equity-index futures for South Korea, Japan, Hong Kong and Australia pointed to losses. Benchmark government bonds in Australia and New Zealand fell in early trading on Wednesday. The S&P 500 halted back-to-back gains, while the tech-heavy Nasdaq 100 fell 0.6%. The dollar rose and gold tumbled.
Consumer prices, excluding food and energy, rose 0.3% in October from a month earlier, according to Bureau of Labor Statistics data, topping estimates for a third straight month. Overall CPI jumped 0.4% as the cost of essentials climbed across the board.
The data triggered a selloff in Treasuries, with the rate-sensitive short-dated bonds hit the hardest. Two-year yields jumped 17 basis points to 4.73%, the most in 19 months. Money markets are now pricing in the Fed to raise rates by a quarter point at its meeting next month, with some chance of an even larger move. Futures are baking in about three quarter-point hikes by June.
Following the release of CPI data, Dallas Fed President Lorie Logan said more rapid rate hikes may be needed this winter to calm inflation. Her remarks followed earlier comments from Governor Christopher Waller that a half-point rate increase in December may be warranted.
“The Fed could push for a more-aggressive tightening cycle with CPI continuing to print strong,” said Lindsay Rosner at Goldman Sachs Asset Management. “A December hike is our firm base case despite wider AI jitters, and stubborn inflation means we cannot rule out further hikes in 2027.”
The prospect of aggressive Fed hikes threatens to derail a nascent recovery in stocks that were whipsawed in the wake of Democratic sweep of the US Congress in the midterms. For bonds, the selloff marked a reversal of a rally that began early last month as tech stocks slipped on worries about the sustainability of the artificial-intelligence boom.
The hot CPI print is a “headwind” for risk assets with “higher front-end yields and a stronger dollar weighing on equity valuations,” said Jeff Schulze, head investment strategist at Franklin Templeton Institute.
Investors are also weighing news that Anthropic PBC is targeting US$1.4 trillion in fully diluted market value through its initial public offering. CoreWeave Inc. reported quarterly earnings that topped analysts’ estimates and boosted its annual forecast, easing investor concerns about the debt-laden business suffering a slowdown.
Shares of SoftBank Group Corp. will be in focus after it swung to a 1.12 trillion yen (US$7.1 billion) loss in its fiscal second quarter after writing down non-refundable advance payments for its US data-center projects.
Elsewhere, Brent crude fell for a second straight day to settle near US$92 a barrel on expectations of further de-escalation in the Iran war. Brent is still up almost 50% this year but the oil market has seen a dramatic turnaround in November, with prices tumbling from a six-month high.
uploaded by Isabelle Francis