An MSCI gauge of Asian shares rose about 0.3% at the open, after rising on Wall Street on Thursday. Shares of Intel Corp helped lift sentiment, rising in post-market trading on upbeat revenue expectations. Government bonds also staged a three-day rally overnight as yields rose across the curve, with the 10-year yield rising five basis points to 4%.
The moves came after the White House said President Trump will meet his Chinese counterpart Xi Jinping on October 30, a positive development amid a trade war between the world’s two largest economies. The Trump administration is also considering a push for quantum computing in an effort to counter China, which will fuel an industry rally.
The cross-asset moves also reflected optimism that Friday’s inflation data will not dent broad optimism, supported by resilient earnings and the potential for supportive news on US-China relations. The dollar was little changed.
“Valuations remain the best argument for bears, but investors’ ruthless buy-the-dip approach is leaving even the most pessimistic investors questioning their prospects,” said Nationwide’s Mark Hackett.
West Texas Intermediate rose 5.6% on Thursday to reach almost $62 a barrel, the highest level since the conflict between Israel and Iran began on June 13. The latest US oil sanctions marked a major policy shift from the Group of Seven’s price ceiling strategy, which aimed to limit Russian profits without disrupting supply or driving up global prices. “As with the trade war, the impact of the oil sanctions is murky at best, although we expect that from a market perspective. In any case, the sudden spike in crude will represent most of the focus on this issue, so to speak,” said Ian Lyngen, Vail Hartman and Delaney Choi of BMO Capital Markets. Investors are likely to look beyond any evidence of persistent inflation in Friday’s Consumer Price Index report, as money markets brace for a Federal Reserve rate cut next week.
The September CPI report, originally scheduled for release on October 15, was postponed due to the US government shutdown. Economists in a Bloomberg survey forecast that the core CPI, which excludes food and fuel, will have risen 0.3% for the third month in a row as higher import duties continue to gradually trickle down to consumers. The expected monthly gain will keep the annual core CPI at 3.1%.
Although inflation remains above the Fed’s target, officials are expected to announce their second rate cut of the year due to the fragile labor market.
Friday’s CPI is important in that it is one of the few economic data points we will see given the government shutdown, said Emily Bowersock Hill, founder of Bowersock Capital Partners.
“But with the Federal Reserve likely more focused on the labor market, we don’t expect Friday’s CPI to weigh heavily on next week’s Fed decision,” she said. “We will probably see two more rate cuts this year, in October and December.”
The prospects for Fed easing, sustained earnings growth and AI investment spending support the view that the equity bull market has further room to run, said Ulrike Hoffmann-Burchardi of UBS Global Wealth Management.
While it is important to have sufficient exposure to US equities, she also believes that investors should diversify their portfolios.
“Any setbacks in US-China relations or potential concerns about the sustainability of the AI-driven rally could lead to bouts of volatility,” she noted.
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