Equity benchmarks in Japan and South Korea advanced more than 1% at the open, extending their recovery from a historic Auust 5 selloff. The gains came after the US producer price index rose less than forecast, helping to fuel a 1.7% rally in the S&P 500 that was led by gains in big tech.
The easing of price pressures has bolstered confidence US officials can start lowering borrowing costs while refocusing on the labor market, which is showing greater signs of slowing. Fed Bank of Atlanta President Raphael Bostic said he’s looking for “a little more data” before supporting a reduction in rates, while reiterating he’ll likely be ready to cut “by the end of the year.”
“There’s evidently scope for upside in equities from downside surprises in inflation data, with Wall Street rallying after lower-than-expected PPI data,” said Kyle Rodda, a senior market analyst at Capital.Com. “The markets will look to the US CPI survey for confirmation that the underlying inflation pulse in the economy is diminishing.”
Treasuries were little changed after rising across the curve in the previous session, with positioning data showing traders remain bullish heading into the US cosumer price report. A Bloomberg gauge of the dollar steadied near a four-month low. The yen slipped against the greenback.
In New Zealand, economists and investors are split over whether the central bank will begin reversing course and cut its key rate by 25 basis points to 5.25% at its meeting on Wednesday.
In China, investors await earnings from Tencent Holdings Ltd., and will scrutinize any comments about its buyback plans. Investor sentiment may also be affected by data that showed China’s bank loans to the real economy contracted for the first time in 19 years.
“The Chinese internet giants reporting this week will be very important to see if consumption weakness in China weighs on margins and ROIs, and which sub-segment vertical such as gaming may be brighter spots,” said Britney Lam, head of equities-long/short at Magellan Investments Holding Ltd. “Valuation is attractive but earnings momentum is key.”
Falling Volatility
The S&P 500 saw its biggest four-day rally this year. The Nasdaq 100 climbed 2.5%. Starbucks Corp. surged 25% after ousting its chief and picking Chipotle Mexican Grill Inc.’s Brian Niccol as its next leader. In late hours, Bloomberg News reported that a bid to break up Alphabet Inc.’s Google is one of the options being considered by the Justice Department.
Wall Street’s favorite volatility gauge — the VIX — tumbled to around 18. Swap traders priced in an about 40 basis-point Fed cut in September and a total rate reduction of over 105 basis points for 2024.
The US producer price index for final demand increased 0.1% from a month earlier. The median forecast in a Bloomberg survey of economists called for a 0.2% gain. For the CPI data due Wednesday, forecasters expect the consumer price index, and a “core” gauge excluding food and energy, to have both advanced 0.2% in July, according to the median estimates in a Bloomberg survey.
“The runway is clear for the Fed to cut rates in September,” said Jamie Cox at Harris Financial Group. “If data like this persists, the Fed will have plenty of room to cut rates further this year.”
Oil climbed in early Asia trading, rebounding from losses on Tuesday as the prospect of a potential surplus overshadowed concern about an escalation in the Middle East conflict.
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