Asian stocks climb as traders shrug off inflation surprise

Asian stocks rose on Thursday, as traders figured a small upside surprise for U.S. inflation was unlikely to push up interest rates, while the euro was firm leading in to a European Central Bank meeting where expectations lean toward a rate hike, Reuters reported.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6% for its best session in a week and a half. Tokyo’s Nikkei rose 1.4% to a one-week high. India’s BSE Sensex rose 0.5% to a fresh record peak.

S&P 500 futures rose 0.3%, while FTSE futures and European futures each rose 0.2%.

Wednesday data showed higher fuel prices had lifted headline U.S. consumer prices by the most in 14 months in August for an annual rate of 3.7%, which was a touch above expectations. Core inflation slowed to an annual 4.3%, as expected.

Treasury yields initially spiked higher, as did the U.S. dollar, before both retraced the moves.

Benchmark 10-year Treasury yields finished the New York session a bit more than a basis point (bp) lower and fell by a further two bps in Asia to 4.23%. Two-year yields spiked above 5%, but were last at 4.96%.

“I think markets are largely prepared for a rebound in inflation, given rapidly rising global energy prices,” said Glenn Yin, head of research and analysis at AETOS Capital Group in Melbourne.

“It does feel like the highly anticipated Fed pause next week is outweighing the fact that inflation has risen at the fastest pace in more than a year.”

Fed funds futures hardly budged on the inflation data, and imply nearly no chance of a rate hike next week, and about a 45% chance of another hike by year’s end.

Thursday’s European Central Bank meeting is next on the horizon, with markets pricing about a 65% chance of a hike that takes Europe’s key interest rate to a record peak. However, analysts see risks to the downside for the common currency – last marginally firmer at $1.0747.