Asian stocks reach a six-month high, with all eyes on US CPI data

On Wednesday (Jan 11), Asian stocks rose to a six-month high, while the dollar held steady, as investors awaited US inflation data for clues on the Federal Reserve's interest rate policy.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.82 percent to a six-month high of 538.56, while Japan's Nikkei gained 1%. The S&P/ASX 200 index in Australia rose 0.90 percent.

Futures in Europe indicated that the upbeat mood would continue, with the Eurostoxx 50 futures up 0.54 percent, the German DAX futures up 0.57 percent, and the FTSE futures up 0.37 percent.

Fed Chair Jerome Powell did not comment on rate policy in a speech on Tuesday, but said the Fed's independence was critical for combating inflation, leading US stocks to end higher.

"With some expecting Powell to push back on easing financial conditions, equity markets celebrated the lack of any clear policy direction," said Saxo strategists.

Investors' focus will be squarely on the US consumer price index (CPI), which is set to be released on Thursday. The headline annual inflation rate is expected to be 6.5 percent in December, down from 7.1 percent in November.

Thursday's data will be crucial in determining what the Fed is likely to do with interest rates in its next meeting at the start of February.

The US central bank raised interest rates by 50 basis points in December after four straight 75 bps hikes in 2022 but has reiterated that it will keep rates higher for longer to tame inflation.

Investors are betting that the upcoming inflation report could show further deceleration, potentially giving the Fed room to slow the pace of interest rate rises, said Stephen Wu, economist at Commonwealth Bank of Australia.

Federal Reserve Governor Michelle Bowman said on Tuesday the central bank would have to raise interest rates further to combat high inflation and that would likely lead to softer job market conditions.

China's stocks were 0.2 per cent higher while Hong Kong's Hang Seng index gained 1 per cent, lifted by hopes of a strong economic rebound from the COVID-19 pandemic and discounted values of stocks.

In the foreign exchange market, the Australian dollar was 0.3 per cent higher after data showed the annual pace of inflation had increased to 7.3 per cent in November. The New Zealand dollar rose 0.1 per cent.

The dollar index, which measures the dollar against six major currencies, was mostly flat at 103.21, hovering close to a 7-month low.

The Japanese yen weakened 0.05 per cent to 132.33 per dollar, while sterling was last trading at US$1.2162, up 0.1 per cent on the day.

The yield on 10-year Treasury notes was down 2.8 basis points to 3.591 per cent, while the yield on the 30-year Treasury bond was down 4.3 basis points to 3.711 per cent.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 2.1 basis points at 4.237 per cent.

US crude fell 1.05 per cent to US$74.33 per barrel and Brent was at US$79.32, down 0.97 per cent on the day.