Asian Shares Track Wall St Gains on Cooler Inflation Data

By Ahmad El-Assasy

After a rise on Wall Street sparked by news that U.S. inflation slowed more than anticipated last month, stocks were generally up in Asia on Wednesday, according to AP report.

Ahead of the U.S. Federal Reserve's interest rate policy announcement on Wednesday, the 7.1% reading for the consumer price index for November gave rise to optimism that economic pressure would ease.

The Fed is anticipated to increase its key rate by half a point on Wednesday, less than its previous four increases of three quarters of a percent.

Also on Wednesday, the quarterly "tankan" survey from the Bank of Japan revealed that the business climate for major Japanese manufacturers had deteriorated. This was due to higher costs for energy and industrial inputs as well as weaker demand as the Fed and other central banks raised interest rates to tame inflation.

The large manufacturer's headline index dropped to 7 from 8 in the previous quarter, marking the fourth consecutive quarter of reductions. By deducting the number of businesses reporting poor business circumstances from those reporting favourable conditions, the tankan gauges corporate sentiment.

As Japan dropped pandemic precautions and reopened to foreign tourists, conditions for nonmanufacturers, such as the service industry, increased to 19 from 14.

According to Darren Tay of Capital Economics, "Today's Tankan survey reveals that while the services sector is growing, the outlook for the manufacturing sector is continuing to deteriorate." He pointed out that estimates for capital expenditures had also somewhat declined.

The Hang Seng in Hong Kong increased by 0.6% to 19,722.16 while the Nikkei 225 in Tokyo increased by 0.7% to 28,156.21. The Kospi in South Korea increased 1.1% to 2,399.25.

To 3,172.33, the Shanghai Composite index dipped 0.1%.

The S&P/ASX 200 index increased 0.7% to 7,251.30 in Australia. The Sensex in India increased 0.7%, while the SET in Bangkok increased 0.6%.

The Nasdaq composite increased 1% to 11,256.81 on Tuesday, while the S&P 500 increased 0.7% to 4,019.65. To 34,108.64, the Dow Jones Industrial Average increased by 0.3%.

Stocks of smaller companies increased as well. At 1,832.36 the Russell 2000 index increased by 0.8%.

Analysts warned investors not to become overly optimistic about a looser Fed, as they have in the past, as stocks pulled back gains.

In a research, experts from Mizuho Bank stated that the detail of the inflation statistics was "behind the hood being less encouraging than it appears on the surface." They pointed out that the increase in core services prices from a month earlier was 0.4%, which distorted inflation risks.

"To be precise , the headline understates underlying inflation risks that concern the Fed," the report said.

Despite the fact that inflation is still excruciatingly high and that consumers are still paying prices that are significantly higher than they were a year ago, Tuesday's report offered some hope that the worst of it actually did pass during the summer.

Since it is twice as much as the ordinary increase, a rate hike by the Fed of 0.50 percentage points would typically be a huge deal. It would be a step down from the four 0.75 percentage point increases the Fed has approved since the summer, though, as inflation has begun to recover from its lowest level in generations.

Tuesday's wildest trading on Wall Street took place in the bond market, where rates significantly dropped right after the announcement of the inflation report.

Mortgage and other significant loan rates are influenced by the yield on the 10-year Treasury, which dropped from 3.62% to 3.48% late on Monday. The two-year yield, which more closely mirrors Fed anticipations, decreased from 4.39% to 4.22%.

This week, several other central banks, including the European Central Bank, are also expected to boost their own interest rates by a half-percentage point.

Even though inflation is finally starting to decline, already enacted rate rises continue to pose a threat to the world economy. Concerns are growing regarding the health of corporate profits generally as well as the housing sector's and other industries' weakness that depends on cheap borrowing rates.

In other markets, electronic trading for New York Mercantile Exchange's benchmark U.S. crude fell 30 cents to $75.09 per barrel. On Tuesday, it increased $2.22 to $75.39 per barrel.

The benchmark price for international trade, Brent crude, dropped 34 cents to $80.34 per barrel.

From 135.59 Japanese yen, the dollar dropped to 135.43 yen. From $1.0633 to $1.0638, the euro increased.