Asian Shares Rise on Soft U.S. Data; Kiwi Dollar Drops After New Zealand Rate Cut

Stock markets in Asia experienced an uptick on Wednesday, driven by news about U.S. producer prices and consumer price inflation expectations. However, the New Zealand dollar took a hit after the country’s central bank slashed interest rates for the time since 2020.

European stock futures suggest a positive start with reports of lower British inflation in July. EUROSTOXX 50 futures increased by 0.5%, while FTSE futures showed a higher rise at 0.6%. On the other hand, U.S. equity futures remained flat.

Japanese Yen and Nikkei React to Prime Minister Kishida’s Resignation

In Japan, Prime Minister Fumio Kishida announced his plans to step down as ruling party leader in September after a three-year term marked by inflation challenges and political controversies. This development led to mixed reactions in markets, with the yen losing ground by 0.2% and the Nikkei index rebounding by 0.6% from recent lows.

The New Zealand dollar depreciated by 1.1% following the Reserve Bank of New Zealand’s decision to reduce interest rates by 25 basis points to 5.25%, hinting at further easing measures beyond forecasts. ANZ’s chief economist Sharon Zollner remarked on the RBNZ’s move today:

“The RBNZ faced a tricky decision today—turning points are always difficult. But the Committee decided they had sufficient confidence in the inflation outlook to start easing monetary conditions.”

MSCI’s broadest index of stocks in Asia Pacific, excluding Japan, increased by 0.4%. However, markets in China experienced a decline, with Hong Kong’s Hang Seng and mainland blue chip stocks both dropping by 0.5%.

On Wall Street, there was a recovery following reports that U.S. producer prices rose less than anticipated in July, signalling an easing of inflation. This development raised the likelihood of a 50 basis point interest rate cut by the Federal Reserve in September to 53%, up from 50% the day earlier, as per the CME FedWatch Tool.

Goldman Sachs adjusted its forecast for the core Personal Consumption Expenditures (PCE) price index, now anticipating a 0.14% increase in July compared to the projection of 0.17%. Investors are eagerly anticipating consumer price data for July, with expectations of a 0.2% increase in both headline and core inflation rates and a dip to 3.2% annually for core inflation.

Investors Eye Upcoming U.S. Consumer Price Data and Retail Sales

Chris Weston, head of research at Pepperstone, noted, “Risk will find buyers if a reduced inflation dynamic drives additional implied rate cuts. However, the opposite is true if any additional rate cuts are driven by weaker growth or poor labour market readings—this week’s U.S. retail sales report could be influential.”

U.S. bonds experienced strong buying activity overnight. The two-year yields were 3.9392%, showing a decrease of seven basis points, while the ten-year Treasury yields remained stable at 3.8465% after a decline of five basis points.

The U.S. Dollar weakened against currencies, edging up by 0.1% to 102.70 following a 0.5% drop overnight. The euro strengthened by 0.6%, reaching $1.0988 and nearing the resistance level of $1.1.

In the commodities market, crude oil prices have bounced back slightly from losses a day earlier as reports indicated a decrease in U.S. Crude and gasoline inventories amid concerns over tensions between Iran and Israel. Brent crude futures saw an increase of 0.7% to $81.23 per barrel, while U.S. West Texas Intermediate crude also rose by 0.7% to $78 93 per barrel. Gold prices inched up by 0 1% to reach $2,461 72 per ounce.