Australian and New Zealand yields edged higher after Treasury yields, which rise when bond prices fall, advanced across the curve Wednesday. The 10-year yield ended the session nine basis points higher, its biggest one-day move since December, when hawkish Fed signals rattled trading.
Australian shares opened fractionally higher Thursday. Equity index futures for Japan and Hong Kong also climbed while a gauge of US-listed Chinese companies advanced 2.7% Wednesday. US equity futures edged higher after the S&P 500 fell 0.3% Wednesday and the Nasdaq 100 rose 0.1%.
Oil steadied after a Wednesday drop on news of US-Russia talks over Ukraine. Gold held a rally from its previous session, inching back toward its record high achieved earlier this week.
An index of dollar strength was little changed on Wednesday. The yen was flat early Thursday after slumping more than 1% Wednesday. The euro held gains against the dollar from the prior session.The moves were mainly centered upon the higher-than-expected rise in US prices, which led traders to adjust bets on US rate cuts to now project the first and only reduction this year to come in December.The monthly gauge of the US consumer price index rose 0.5% in January, the most since August 2023. Core CPI — which excludes food and energy costs — increased 0.4% in January, also more than anticipated, Bureau of Labor Statistics figures showed Wednesday. Year-over-year gauges for both headline and core inflation also rose more than expected.“Higher-for-longer may have just gotten a little longer,” said Ellen Zentner at Morgan Stanley Wealth Management. “The Fed has been waiting for clear signs that inflation is trending lower again, and this morning they got the opposite. Until that changes, the markets are going to have to remain patient about additional rate cuts.”
Fed Chair Jerome Powell said the data shows that while the central bank has made substantial progress toward taming inflation, there is still more work to do, “so we want to keep policy restrictive for now,” he said.
“Today’s inflation report will make for very uncomfortable reading for the Fed,” said Seema Shah at Principal Asset Management. “If this persists into the next few months, inflation risks may become too heavily weighted to the upside to permit the Fed to cut rates at all this year.”
In Asia, data set for release Thursday includes producer prices for Japan, an interest rate decision in the Philippines, while money supply data for China may be released any time through February 15. Elsewhere, India’s Prime Minister Narendra Modi is set to meet Donald Trump at the White House later Thursday.
Hot Inflation
The market is going to start seriously considering that the next move the Fed makes – even if it is in late 2025 or early 2026 – is going to be a hike and not a cut, according to Chris Zaccarelli at Northlight Asset Management.
“The market will likely have a negative knee-jerk reaction to the increasing risks of ‘higher-for-longer’ or even ‘higher-from-here.’ So caution is warranted,” he said.
The jump in US inflation last month that surprised investors was mostly due to the way the government adjusts for typical price increases at the start of the year, according to Bloomberg Economics.
While the report spooked markets and reduced odds of a Fed interest-rate cut in the first half of the year, the advances were “mostly due to residual seasonality — the ‘January effect’ — limiting the signal from the hot print,” Bloomberg Economics’ Anna Wong and Stuart Paul wrote. At the same time, inflation ran a touch cooler at the end of 2024.
The decline for the S&P 500 came after the index pared most of a 1.1% slide following the inflation data. Tesla Inc. led gains in megacaps and Meta Platforms Inc. rose for an 18th straight session. For the first time since November, the Nasdaq 100 erased an intraday loss of 1%. In late hours, Cisco Systems Inc. jumped on an upbeat sales forecast.
