Ukraine ceasefire hopes soften US inflation blow

By Jamie McGeever

(Reuters) – A have a look at the day forward in Asian markets.

Buyers banking on the latest decline in U.S. bond yields and the greenback underpinning a rally throughout danger property received a stark reminder within the form of punchy U.S. inflation on Wednesday that rates of interest will not be coming down any time quickly.

Actually, they received a couple of reminders – Fed Chair Jerome Powell repeated his view that financial coverage should stay restrictive for now, and Home Republicans unveiled a fiscal plan that will lower taxes by about $4.5 trillion over a decade and lift the federal debt ceiling by $4 trillion.

Confronted with sticky inflation, fiscal largesse and Powell’s confidence within the U.S. financial system, charges markets are actually solely pricing in a single Fed charge lower this yr, which would depart the fed funds charge above 4.00%.

The ten-year yield rose 10 foundation factors, the yield curve steepened, the greenback jumped, and shares fell.

However danger property have been resilient this yr, not solely within the U.S. the place Wall Road and company bonds are hugging report highs, however globally. Many rising market shares and currencies are up year-to-date, additionally fairly spectacular contemplating the darkish cloud of U.S. tariffs hanging over them.

This resilience received a lift on Wednesday after U.S. President Donald Trump spoke with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy about beginning negotiations “instantly” to finish the conflict in Ukraine.

That was sufficient to take the wind out of the greenback’s sails, slam oil down 2.5%, lower Wall Road’s losses, and push Asian fairness futures into the inexperienced.

Whereas many cash managers can have factored a possible Russia-Ukraine ceasefire into their funding allocations this yr, it is unlikely it has been absolutely priced throughout markets. All else equal, additional progress in the direction of peace ought to assist danger urge for food, and hold a lid on oil and the greenback.

In Asia on Thursday, the principle occasions will likely be an rate of interest determination from the central financial institution of the Philippines and the most recent wholesale inflation figures from Japan.

The Bangko Sentral ng Pilipinas (BSP) is broadly anticipated to chop its key coverage charge by a quarter-point to five.50%. Inflation seems to be underneath management, within the central financial institution’s 2-4% goal vary since October, however progress is slowing.

The Philippine peso has been among the many weaker rising market currencies, and is down barely in opposition to the greenback year-to-date.

The yen, in the meantime, had its worst day this yr in opposition to the greenback on Wednesday however might rebound on Thursday if Japanese wholesale inflation figures are available on the robust facet.

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