Asian markets stumble as hot PPI print reins in Fed rate cut hype
Asian stocks experienced a mixed recovery as higher-than-expected U.S. producer price inflation tempered expectations for aggressive Federal Reserve rate cuts. U.S. bond yields and equity futures stabilized amidst these concerns. The Nikkei 225 rebounded following positive Japanese GDP data, while investors awaited a U.S.-Russia meeting in Alaska, influencing commodity markets.
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Stocks in Asia made an uneven recovery as higher-than-expected producer price inflation dampened expectations of a jumbo rate cut at the Federal Reserve's September meeting, while U.S. bonds and equity futures stabilised. MSCI 's broadest index of Asia-Pacific shares outside Japan was down 0.3% after a report on Thursday from the Bureau of Labor Statistics, which showed the Producer Price Index increased 0.9% in July on a month-over-month basis, well above economists' expectations."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.The market is currently pricing in a 92.1% probability of a 25 basis point rate cut at its September meeting, compared with a 100% likelihood of a cut on Thursday, according to the CME Group's FedWatch tool. The chance of a jumbo 50 basis point cut fell to 0% from an earlier expectation of 5.7% a day ago.U.S. stock futures were flat in early Asian trading after ending a choppy trading session on Wall Street with mild gains on Thursday. The yield on the U.S. 10-year Treasury bond was down 1 basis point at 4.2829%.The two-year yield, which is sensitive to traders' expectations of Fed fund rates, slipped to 3.7304% compared with a U.S. close of 3.739%. Nasdaq futures extended losses into a third consecutive day, sliding 0.1% lower.The dollar index , which tracks the greenback against a basket of currencies of other major trading partners, retraced some gains after the PPI data release, last trading down 0.1% at 98.143.The Nikkei 225 rebounded 0.4% after snapping a six-day winning streak on Thursday with its biggest one-day selloff since April 11, as Japanese GDP data showed the economy expanding by an annualised 1.0% in the April-June quarter, beating analyst estimates. The dollar weakened 0.3% against the yen to 147.64.Australian shares were last up 0.2%, while stocks in Hong Kong were down 0.9% following losses on Thursday for U.S.-listed exchange-traded funds tracking Chinese companies.The CSI 300 gave up early gains and was last trading flat after the release of weaker-than-expected Chinese economic data for July, including retail sales and industrial production. Markets in India and South Korea are closed for public holidays.Cryptocurrency markets stabilised after a new record for bitcoin of $124,480.82 on Thursday proved fragile and promptly crumbled after falling short of its next key milestone. The digital currency was last up 0.7%, recovering some ground, while ether gained 1.7%."Bitcoin's failure to conquer the $125,000 resistance signals another consolidation phase," said Tony Sycamore, a market analyst at IG in Sydney.In commodities markets, Brent crude was flat at $66.94 per barrel ahead of a meeting in Alaska between U.S. President Donald Trump and Russian leader Vladimir Putin.Gold was slightly lower as the markets digested the path of inflation-adjusted interest rates, which typically move in the opposite direction from bullion prices. Spot gold was trading up 0.1% at $3,339 per ounce.In early European trades, the pan-region futures were up 0.4%, German DAX futures were up 0.3% at 24,489, and FTSE futures were up 0.5%.
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