Stocks in Asia picked up where Wall Street left off after Christopher Waller signaled he is open to no move in September if inflation keeps cooling. MSCI's Asia Pacific index rose 0.3%, led by South Korea's tech group, as investors dialed back expectations for an immediate Fed hike.
Rate markets now price roughly even odds of a quarter-point increase next month, compared with about a 70% chance earlier this week. "The comments are very meaningful because they might have changed the or tilted the balance of next Fed policy decision," said Suresh Tantia, UBS Global Wealth Management Head CIO Asia Equity Strategy, on Bloomberg TV.
Waller's tone helped stocks and bonds stabilize after a global jump in yields to multi-decade highs earlier in the week. That earlier surge followed rising oil prices and a hawkish stance from Chair Kevin Warsh that boosted expectations the Fed might tighten to restrain inflation. The selloff also reflected investors seeking more yield compensation after years of large fiscal outlays, ongoing price pressures, and a burst of corporate debt issuance to fund AI buildouts.
Brent crude inched up 0.2% to $95.71 a barrel. Iran said it carried out new strikes on US bases, while a smaller-than-anticipated increase in Saudi Arabia's flagship crude pricing helped temper supply worries. Treasuries and gold hovered near Thursday's gains, and the two-year Treasury yield held at 4.34%.
The yen jumped about 2% Thursday, snapping a month of gradual declines and delivering its strongest session since Tokyo and Washington stepped in to support the currency a little over a month ago. Traders boosted wagers on Bank of Japan rate increases and stayed alert to the possibility of further official action. The currency traded around 155.60 per dollar after reaching 155.30 in the prior session.
The shift followed weeks of doubt about the staying power of intervention and coincided with talk that Japan's largest pension fund could lift its target for domestic bonds. "It appears the BOJ will pull the trigger and hike in September but then open the door to a potential pick up in the pace of hiking," said Paresh Upadhyaya at Pioneer Investments. "We are finally seeing a follow through to intervention by some meaningful expectation on the policy front."
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Waller emphasized data dependence and noted recent progress on inflation heading into the last price readings before the September meeting. He said he was prepared to back "holding the policy rate," and would leave it in place provided price gains keep converging on the Fed's 2% goal. In July, the personal consumption expenditures price index within US GDP came in at 3.7%, down from 4.1% in May.
Markets are now focused on Friday's nonfarm payrolls report, with the baseline still a hold that could shift if inflation remains stubborn. "We repeat our call that the Fed is more likely to hold than hike in September, though we think it is close and will indeed turn on the next set of inflation data," Guha said. The latest read on the US services sector showed the fastest expansion in six months in August on stronger demand and livelier business activity, while new filings for unemployment benefits for the week through Aug. 29 landed near forecasts. Bitcoin traded above $81,000.
For your money, the setup is simple to track: a cooler path for Fed tightening than earlier this week, oil still nudging sentiment, and a livelier yen that can sway returns if you own Asia exposure.
