South Korea led Asian shares higher Tuesday, as upbeat sentiment prevailed ahead of US inflation data that could determine the strength of the Federal Reserve’s monetary tightening policy.
Seoul’s main share index, KOSPI, jumped 2.7% after an extended weekend and was track for its best session since February 2021, while shares in Shanghai rose as much as 0.5% to hit a three-week high.
“The outperformance in KOSPI is largely due to some catch-up gains, which could be mirrored in the Chinese indices later as well, with further gains in Wall Street continuing to provide a positive backdrop for the risk environment in the region,” said Yeap Jun Rong, market strategist at IG.
Wall Street extended its winning streak overnight, partly on hopes that the consumer price index data might signal that inflation has peaked.
Stocks extend slide, dollar climbs on rate hubbub
Interest rate futures imply a 90% chance that the Fed will lift its benchmark interest rate by 75 basis points at next week’s policy meeting - a position that is perhaps more vulnerable to a downside CPI surprise than to unexpectedly strong inflation.
On Tuesday, South Korea’s won strengthened 0.4% to hit a one-week high. The yuan gained 0.1%, while the Indonesia rupiah and Philippine peso dipped.
“Asian currencies have generally been following the broad dollar in the last few weeks, and that is likely to continue in any market reaction to the US CPI numbers, said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
The yen rose 0.2%, with talk of intervention from Japanese officials supporting the sliding currency.
“If the yen moves quite sharply in the either direction from hereon, the biggest impact will be on the Korean won, but it is important to emphasise that it’s only one of several factors that would drive the won,” Tan said.
The Indian rupee moved upward to hit its highest level since mid-August, after the country on Monday reported the annual retail inflation rate for August had accelerated to 7%, putting more pressure on the monetary policy committee (MPC) of the central bank to raise interest rates again later this month.
“It’s clear that inflation remains uncomfortably high and the data will do little to ease the concerns of several MPC members who continue to strike a relatively hawkish tone,” said Capital Economics’ senior India economist, Shilan Shah.
He added that a 50 basis point hike to the repo rate was likely in the next policy announcement, on Sept. 30.
Shares in Mumbai rose 0.6%, while equities in Jakarta and Taipei rose between 0.6% and 0.9%.
Highlights
** Indian rupee up 0.3%, hits highest since Aug. 11
** Yield on Indonesia’s 10-year benchmark bond down to 7.134% - lowest since Sept. 2
** South Korean won hits highest level since Sept. 6
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