Asian stocks were subdued on Thursday and the dollar was on the defensive after U.S. data showed progress in slowing inflation stalled even as the economy remained resilient, raising doubts about the path that the Federal Reserve could take next year.
With the Thanksgiving holiday in the United States, trading is expected to remain limited through the end of the week, and traders are hesitant to make large bets.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.07%, with Japan’s Nikkei up 0.46%.
Sentiment remained fragile as investors questioned the possibility of a tariff war triggered by the policies of US President-elect Donald Trump.
Data on Wednesday showed that U.S. consumer spending grew slightly more than markets expected in October, but progress on reducing the inflation rate appears to have stalled in recent months.
Lack of success in bringing inflation back to the Fed’s 2% target, along with the prospect of higher tariffs on imported goods, could reduce the scope of interest rate cuts next year .
While the Fed is still expected to make a third interest rate cut in December, minutes from the Nov. 6-7 Federal Open Market Committee meeting, released Tuesday, showed that officials appeared divided over the extent of the interest rate cut needed.
“We continue to expect the FOMC to cut the funds rate by 25 basis points at its December meeting,” said Kristina Clifton, an economist at the Commonwealth Bank of Australia.
“However, another strong monthly core inflation in November will challenge the FOMC’s view that inflation is trending downward at 2% per year. Doubts about sustainable inflation convergence toward the target targeted would reduce market expectations for a reduction in December.
Traders give a 65% chance that the Fed will cut rates next month and anticipate 75 basis points of easing by the end of 2025, according to LSEG data.
Macquarie strategists said the inflation outlook has become murkier, with the possibility of tariff threats being implemented by the incoming Trump administration having the potential to create renewed upward pressure in property prices. base.
“While the tariffs introduced in 2018/2019 ultimately did not prove inflationary, we caution against extrapolating to current circumstances,” they said in a client note.
To everyone’s surprise, South Korea’s central bank cut benchmark interest rates for a second straight meeting on Thursday, as the economy stalled and inflation slowed more than forecast. political leaders. The won weakened after the decision.
The yen fell 0.3% to 151.615 per dollar, but remained near the one-month high it hit in the previous session. The Asian currency is heading for its strongest weekly performance since early September on growing expectations of an interest rate increase from the Bank of Japan next month.
The euro held steady after rising 0.7% in the previous session as investors reduced their bets on a rate cut following a statement from Central Bank board member Isabel Schnabel European Union, according to which reductions should be gradual and move towards neutral and non-accommodative territory. [FRX/]
In the commodities sector, oil prices remained stable as supply concerns eased after a ceasefire agreement between Israel and Hezbollah.
Brent oil futures were little changed at $72.8 a barrel. US West Texas Intermediate crude remained stable at $68.7.
Spot gold fell to $2,626 per ounce. [GOL/]
