Asian shares rally as markets wager on Fed pivot; US inflation in focus -October 12, 2023 at 01:48 am EDT

SYDNEY, Oct 12 (Reuters) – Asian shares rose on Thursday
as markets wagered that U.S. rates have peaked after more dovish
remarks from Federal Reserve officials, while traders awaited
the U.S. consumer inflation report due later in the day for
further monetary policy clues.

Europe is set to extend the rally, with EUROSTOXX 50
futures up 0.3% and FTSE futures rising 0.4%.
S&P 500 futures and Nasdaq futures were 0.3%
higher.

In Asia, MSCI’s broadest index of Asia-Pacific shares
outside Japan gained 0.9% to the highest level
in three weeks. Tokyo’s Nikkei rallied 1.7%, climbing
away from its five-month low hit last week.

News that Central Huijin Investment, a Chinese state
fund, raised stakes in the country’s big four banks also boosted
confidence in the broader market. Hong Kong’s Hang Seng index
jumped 2.0% and China’s blue chips rose 0.8%.

China, however, has also issued a notice prohibiting
domestic brokerages and their overseas units from taking on new
mainland clients for offshore trading, which will restrict
capital outflows, Reuters reported on Thursday.

Overnight, Wall Street closed higher after Fed minutes
showed a growing sense of uncertainty around the path of the
U.S. economy, with volatile data and tightening financial
markets posing risks to growth and leading policymakers to
extend a rate pause last month.

The recent buoyancy in sentiment also owes much to comments
from more Fed officials suggesting U.S. rates may have peaked,
which triggered a welcome pullback in Treasury yields.

U.S. Fed Governor Christopher Waller on Wednesday said
higher market interest rates may help the Fed slow inflation and
allow the central bank to “watch and see” if its own policy rate
needed to rise again or not.

Waller has been among the most vocal advocates for higher
interest rates to fight inflation, and his comments added weight
to similar statements this week by Fed Vice Chair Philip
Jefferson and Dallas Fed President Lorie Logan.

The dollar drifted near a two-week low, but the yen
is still under pressure at 149.09 per dollar, just a
whisker away from the 150 level that could spur intervention
from Japanese authorities.

Markets moved to further trim the chance of a Fed hike in
November to just 9%, down from 13.2% a day earlier, and there is
a 70% chance that the rate is already at its peak, according to
CME FedTool.

With the long-awaited pivot for the Fed in sight, traders
are bracing for the all-important U.S. consumer inflation report
due later on Thursday. Stakes are higher because a producer
price inflation report came in hotter than expected on
Wednesday.

Economists expect the headline consumer price index (CPI) to
haven risen 0.3% in September on a monthly basis, slowing from
0.6% in August, while core CPI is seen steady at 0.3%.

Alan Ruskin, chief international strategist at Deutsche
Bank, said an upside surprise in the core rate of 0.4% or more
would catch investors off guard, although geopolitical risk was
likely to deter the bond market from trading too bearishly on
stronger data.

“The more lasting impact to the data would likely come from
a 0.4% m/m core number, which would mean that the two most
important data releases for September numbers (non-farm payrolls
and CPI) would both be making a case for the Fed remaining
hawkish,” he said.

Long-dated treasury yields eased for a third straight
session, also benefiting from some safe-haven demand from the
ongoing conflict in the Middle East.

Ten-year yields eased 3 basis points to 4.5706%
on Thursday, off from a 16-year high of 4.8870%.

Oil prices extended their declines on Thursday after top
OPEC producer Saudi Arabia pledged to help stabilise the market
amid fears of supply disruption from the conflict between Israel
and Palestinian Islamist group Hamas.

Brent futures eased 0.3% to $85.56 a barrel after a
2% drop in the prior session. U.S. West Texas Intermediate crude
fell 0.5% to $83.08, following a 2.9% plunge on
Wednesday.

Spot gold was 0.3% higher at $1,878.98 per ounce,
about the highest in two weeks.

(Reporting by Stella Qiu; Editing by Shri Navaratnam and Jamie
Freed)