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Asian shares track Wall Street gains on cooler inflation data

BANGKOK (AP) – Stocks were mostly higher yesterday in Asia after a rally on Wall Street spurred by news that inflation in the United States (US) cooled more than expected last month.

The 7.1 per cent consumer price index reading for November raised hopes on Tuesday for easing pressure on the economy ahead of an interest rate policy update from the US Federal Reserve (Fed).

The Fed was widely expected to raise its benchmark rate a half-point, smaller than the past four hikes of three-quarters of a point.

Also yesterday, the Bank of Japan’s quarterly “tankan” survey showed a deterioration in business conditions for major Japanese manufacturers, reflecting higher costs for industrial inputs and energy and weaker demand as the Fed and other central banks raise interest rates to tame inflation.

The headline index for large manufacturers was seven, down from eight in the previous quarter and the fourth straight quarter of declines. The tankan measures corporate sentiment by subtracting the number of companies saying business conditions are negative from those responding they are positive.

Conditions for non-manufacturers, such as service industries, rose to 19 from 14, as Japan lifted pandemic precautions and reopened to foreign tourists.

A currency trader at the KEB Hana Bank headquarters. PHOTO: AP

“Today’s tankan survey suggests that while the services sector is going from strength to strength, the outlook for the manufacturing sector continues to worsen,” Darren Tay of Capital Economics said in a commentary. He noted that capital spending projections also weakened slightly.

Tokyo’s Nikkei 225 advanced 0.7 per cent to 28,156.21 and the Hang Seng in Hong Kong added 0.6 per cent to 19,722.16. South Korea’s Kospi was up 1.1 per cent to 2,399.25. The Shanghai Composite index edged 0.1 per cent lower to 3,172.33.

In Australia, the S&P/ASX 200 gained 0.7 per cent to 7,251.30. India’s Sensex gained 0.7 per cent while the SET in Bangkok added 0.6 per cent.

On Tuesday, the S&P 500 rose 0.7 per cent to 4,019.65 and the Nasdaq composite gained one per cent to 11,256.81. The Dow Jones Industrial Average picked up 0.3 per cent to 34,108.64.

Small company stocks also gained ground. The Russell 2000 index rose 0.8 per cent to 1,832.36.

Stocks pared back gains as analysts cautioned investors not to get carried away by hopes for an easier Fed, as they have in the past.

The detail of the inflation data “under the hood being less encouraging than it is on the surface”, Mizuho Bank economists said in a report.

They noted that core services prices were up 0.4 per cent from a month earlier, distorting  inflation risks.

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

Tuesday’s report offered hope that the worst of inflation really did pass during the summer, though inflation remains painfully high and shoppers are paying prices well above levels from a year earlier.

A Fed rate hike of 0.50 percentage points would usually be a big deal because it’s double the typical move. But with inflation coming off its worst level in generations, it would be a step down from the four hikes of 0.75 percentage points the Fed has approved since the summer.

Some of Wall Street’s wildest action on Tuesday was in the bond market, where yields fell sharply immediately after the inflation report’s release.

The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, fell to 3.48 per cent from 3.62 per cent late Monday. The two-year yield, which more closely tracks expectations for the Fed, dropped to 4.22 per cent from 4.39 per cent.

Other central banks around the world, including the European Central Bank, are also likely to raise their own rates by half a percentage point this week.

Even if inflation is finally abating, the global economy still is threatened by rate increases already pushed through. The housing industry and other businesses that rely on low interest rates have shown particular weakness, and worries are rising about the strength of corporate profits broadly.

In other trading, US benchmark crude lost 30 cents to USD75.09 per barrel in electronic trading on the New York Mercantile Exchange. It jumped USD2.22 on Tuesday to USD75.39 per barrel.

Brent crude, the pricing basis for international trading, shed 34 cents to USD80.34 per barrel.

The dollar slipped to JPY135.43 from JPY135.59. The euro rose to USD1.0638 from USD1.0633.


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