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Asia extends risk-on rally into US CPI report: markets wrap

Equities in Asia extended the global rally in risk assets amid speculation that Tuesday’s US consumer price data will support bets that inflation there is near peaking. Stocks rose in Japan, Australia and Hong Kong. US futures were steady after the S&P 500 completed its best four-day surge since June on Monday following robust pre-order data for Apple’s iPhone 14 Pro Max.

The Bloomberg Dollar Spot index declined a third day, the longest losing streak in more than a month, as investors weigh positive signs in the economy against hawkish rhetoric from Federal Reserve policy makers. Treasury yields inched lower on Tuesday after the curve steepened during the US session. The inflation report is expected to show headline CPI cooled in August to an 8% a year pace while the core measure that excludes food and energy is seen accelerating. Traders almost fully expect another jumbo-sized hike next week, following two 75-basis-point increases, taking their cue from officials supporting that view. 

“Any potential upside surprise will likely see more volatility in rates,” said Giulia Specchia, a macro strategist at UBS Group AG in Sydney. “We do expect the monthly pace of inflation to slow notably over the remainder of the year.” US bond-market indicators suggest that investors are gaining confidence that this year’s spike in inflationary pressures will be brought under control. The cost of hedging high inflation has fallen, while so-called breakeven rates on Treasury Inflation Protected Securities – a proxy for where markets expect inflation to be – have also dropped. Crude oil fell about 1% after a recent advance. Bitcoin traded above $22,000, even as it pared a rally on Monday amid the brighter mood in global markets.

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