Ambiguity in Asian Stocks Amid Expectation for U.S. Inflation Data

SadaNews - Asian stock indices stabilized on Thursday, after some major technology companies in the region showed positive performance ahead of the highly anticipated U.S. inflation data later today.

The main indices in Japan, South Korea, and mainland China recorded gains, while their counterparts in Australia and Hong Kong declined. The MSCI Asia-Pacific Index remained relatively unchanged after five consecutive sessions of gains. U.S. futures rose after the S&P 500 set a new record on Wednesday.

Shares of Japanese conglomerate SoftBank rose nearly 8% to a new level, after shares of its owned company Arm Holdings Plc surged in New York trading. Stocks of Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea's SK Hynix also gained.

Conversely, Alibaba Group's shares fell by 1.3%, as the company seeks to raise $3.17 billion through the issuance of non-interest bearing convertible bonds, marking the largest deal of its kind this year, according to documents seen by Bloomberg News.

U.S. Treasury yields stabilized after widespread gains across different maturities on Wednesday, while government bonds in Australia and New Zealand rose on Thursday. The dollar index remained relatively unchanged, and the yen stabilized against the U.S. currency.

Producer prices in the United States unexpectedly declined in August, for the first time in four months, easing concerns about persistent inflation and its impact on policymakers' ability to avoid a downturn in the labor market, a situation investors are closely watching ahead of the consumer price index data release.

Debate on Expected Interest Rate Cuts

Ian Lyngen and Ayelet Hartman from BMO Capital Markets stated: "Investors are currently assessing the impact of August's employment data, revisions to previous numbers, and producer prices on the debate surrounding a potential 50 basis point rate cut next week," adding, "We still lean towards a 25 basis point cut. For a larger move to be possible, today's core inflation data must come in below expectations."

Excluding food and energy, U.S. producer prices fell by 0.1% in August compared to the previous month, contradicting estimates that called for a rise of 0.3%. Data from July was also revised lower. Neil Dutta from Renaissance Macro Research commented that "the numbers might reflect companies' attempts to maintain competitiveness and market share."

He added: "The Fed should cut rates by 50 basis points next week, but I don’t believe it will. The case for easing has strong justifications, while hawks will argue that unemployment remains low, financial conditions are accommodative, and inflation pressures remain due to tariffs."

Weak Dollar Likely to Persist

Bloomberg strategists believe the narrative favoring a weaker U.S. dollar will gain strength, as investor confidence grows that the Federal Reserve will move towards deeper rate cuts.

Mary Nikola, a market strategist at Markets Live, stated: "Even if the consumer price data comes in higher than expected, the level of surprise must be very significant for the market to change its mind about the rate cuts. Estimates suggest three additional cuts throughout the remaining year, and any negative surprise in inflation data could open the door for a 50 basis point cut next week."

The European Central Bank is expected to keep interest rates unchanged at its meeting later today.

In the same context, U.S. President Donald Trump and Indian Prime Minister Narendra Modi have committed to resuming trade negotiations, indicating a potential de-escalation after weeks of heightened tensions over tariffs and Russian oil purchases.

U.S. Inflation

Expectations indicate that the core consumer price index, which excludes food and fuel, may have risen by 0.3% in August, for the second consecutive month, according to the average estimates from a Bloomberg survey. However, a weaker-than-expected reading could push the market to favor a 50 basis point cut next week.

Ulrike Hofmann-Borchard, from UBS Global Wealth Management, believes that "the slowdown in job growth, alongside contained inflation, will keep the Fed on a path of rate cuts. A 25 basis point cut is expected to begin this month, followed by three consecutive cuts of the same magnitude until January 2026."

Chris Larkin from E*Trade, a Morgan Stanley subsidiary, stated: "Tomorrow's inflation data will be more impactful, but today's producer price figures have set the stage for a rate cut next week. While the latest jobs report has elevated easing expectations, the question remains: to what extent will this impact sentiment in the short term?"

On the commodities front, gold dipped slightly after gains in the previous session, while oil prices stabilized after three sessions of increases, amid investors assessing Trump's next actions against Russia, raising concerns over supplies.

In another development, Mexico is considering imposing tariffs of up to 50% on imports of cars, parts, steel, and textiles from China and countries without free trade agreements with it, according to Economy Minister Marcelo Ebrard.