(Bloomberg) — Asian shares fluctuated as traders await key US inflation data for clues on whether the Federal Reserve will cut or hold interest rates next week. The dollar snapped a three-day gain.
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South Korean equities rose for a second session, continuing a recovery after last week’s short-lived martial law event that thrust the country into political turmoil. Stocks in Hong Kong and mainland China fluctuated as an annual economic meeting begins in Beijing on Wednesday.
The greenback weakened against most Group-of-10 peers in the runup to American consumer price index data. S&P 500 contracts were little changed on Wednesday.
Wednesday’s CPI will offer Fed officials another look at inflation ahead of their next meeting. Swap trading projects about an 85% chance of a quarter-point rate reduction this month. Meanwhile, China’s two-day Central Economic Work Conference is expected to map out policies for next year, with traders emboldened by stimulus signals from top leaders.
“The market is seeking evidence to support continued rate cuts” in the US, said Kimmy Tong, global market & FX strategist at Everbright Securities International. “Given that US CPI data has gradually rebounded since October, the importance of the November CPI data is crucial for justifying two rate cuts in the first half of 2025.”
China may raise its budget deficit to the highest in three decades and make the deepest interest-rate cuts since 2015, according to economists. At least seven Chinese brokerages forecast that next year’s fiscal deficit target could reach 4% of gross domestic product, the widest since a major tax reform in 1994. Beijing has historically kept its budget deficit ratio at or below 3%.
Chinese and Hong Kong shares were positive through much of the Asian morning, then quickly erased gains.
With little follow-through from China’s politburo announcements, “it may be a case of once bitten, twice shy for investors, who are becoming more skeptical and less willing to buy into stimulus, given the lack of follow through with past policy promises,” said Kyle Rodda, a senior market analyst at Capital.com.
Treasury 10-year yields were little changed at 4.23%.
In Japan, the yen strengthened slightly after inflation in corporate goods prices accelerated to the fastest pace in 16 months, an outcome that points to growing inflationary pressure in the economy and supports the central bank’s further normalization of policy.