Asian stocks rise after US inflation data clears way for rate cut

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Asian markets rose on Thursday after US inflation data cleared the way for another Federal Reserve rate cut next week.

November inflation in the world’s largest economy came in at 2.7 per cent, higher than the previous month but in line with market expectations, solidifying expectations for a quarter-point rate cut in December.

Equity markets in Asia led by Japan and China were buoyed by gains in US stocks, and Asian currencies strengthened against the dollar as investors positioned for lower rates.

The exporter-heavy Nikkei 225 index in Japan closed up 1.2 per cent, while China’s blue-chip CSI 300 index rose 1 per cent past 4,000 points. Hong Kong’s Hang Seng climbed 1.6 per cent.

Yields on China’s benchmark 10-year government bonds fell almost two basis points to 1.814 per cent, widening the spread against 10-year US yields to nearly 250 basis points. Bond yields move inversely to prices. The offshore renminbi was hovering at Rmb7.27 a dollar.

“The moves in Asian markets have been fairly solid and risk on,” said Mitul Kotecha, head of emerging markets and macro strategy at Barclays. “The strong reaction in the US especially in tech stocks — Asian markets are reacting to that. The inflation numbers play to more continued easing — it’s a not-too-hot, not-too-cold scenario and that’s good for markets.”

The Nasdaq 100 closed up 1.9 per cent and the tech-heavy Nasdaq Composite closed above 20,000 points for the first time as US tech stocks gained.

“On Japan, Korea and Taiwan, the rise of US big tech is providing a lift in the semiconductor industry,” said Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas.

The dollar weakened 0.15 per cent against a basket of currencies including the pound and Japanese yen. It has surged since Donald Trump’s victory in November’s presidential election, propelled by bets he will introduce more trade tariffs and loosen fiscal policy.

Analysts added that other factors were driving some of the Chinese gains.

“For Hong Kong and China equities, investors are turning more positive on the rising expectation of the Central Economic Work Conference outcome after the pro-growth politburo statement,” said Lui.

The Communist party’s politburo, which is led by Xi Jinping, changed its monetary policy stance on Monday to “moderately loose” from “prudent” for the first time in 14 years.

Taiwan’s benchmark stock index rose 0.6 per cent, while South Korea’s Kospi was up 1.1 per cent.

Additional reporting by Cheng Leng in Hong Kong