Asian stocks climb as traders shrug off inflation surprise. The euro was strong leading up to a meeting of the European Central Bank, where expectations tilt toward a rate increase, and this helped drive Asian equities higher on Thursday. Traders thought that a slight upside surprise for U.S. inflation would not likely cause interest rates to rise.

The broadest index of Asia-Pacific equities that MSCI maintains (.MIAPJ0000PUS) had its best session in almost a week and a half of trading when it increased by 0.6%. The Nikkei 225 index in Tokyo gained 1.4%, reaching a new high for the last week. The BSE Sensex (.BSESN) in India had a gain of 0.5%, taking it to a new record high.

Futures on the S&P 500 index increased by 0.3%, while futures on the FTSE and European indices rose by 0.2%.

The statistics released on Wednesday indicated that increased gasoline costs had raised headline consumer prices in the United States by the highest in 14 months in August, for an annual rate of 3.7%, which was a touch over forecasts. As was anticipated, inflation measured by the core rate fell to 4.3% annually.

After an early surge to the upside, Treasury rates and the U.S. currency both proceeded to reverse their previous directions of movement.
Yields on benchmark 10-year Treasury notes closed the New York session down by a little more than a basis point (bp), and they continued to decline in Asia, dropping another two bps to reach 4.23%. Yields on two-year bonds briefly climbed over 5% but have since settled at 4.96%.

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

“It does feel as though the highly anticipated Fed pause next week is outweighing the fact that inflation has increased at the fastest pace in more than a year,” the author of the article above said.

Fed funds futures scarcely moved in response to the inflation statistics, which suggests that there is almost no probability of a rate rise being implemented the next week and around a 45% likelihood of another rate hike being implemented before the end of the year.

The next meeting of the European Central Bank is scheduled to take place on Thursday, and financial markets are pricing in around a 65% likelihood of a rate rise that would bring Europe’s benchmark interest rate to a record height.

However, experts expect risks to the downside for the common currency, which was slightly higher at $1.0747 in its most recent trading session.

Brent Donnelly, an analyst with Spectra Markets, made the following prediction: “Either the ECB surprises by not hiking, or they deliver a very dovish late cycle hike,” He said that regardless of the outcome, the news was bearish for the euro.

RESTRICTIONS IN SUPPLY DRIVE UP OIL PRICE

China’s electric car shares weighed the market after the European Commission said it would investigate subsidies. Stock market movements were generally moderate across Asia, with the Hang Seng (.HSI) and mainland Chinese markets (.SSEC)(.CSI300) trading either side of flat. China’s electric vehicle shares were a drag on the market.

The value of the U.S. dollar decreased somewhat on the foreign currency markets in August, while the value of the Australian dollar increased due to an increase in employment. At its most recent price of $0.6435, it had gained around 0.2%, even though predictions regarding interest rates had hardly changed.

In addition, the New Zealand dollar strengthened to $0.5929, while the value of one U.S. dollar decreased to 147.13 Japanese yen, a change of around 0.2%.

The yen has mostly given up the gains it earned after the governor of the Bank of Japan, Kazuo Ueda, hinted at the conditions to end negative short-term rates. Traders anticipate that any departure from negative short-term rates would be delayed, and the rate differential with the United States will remain broad.

The value of one dollar in the Chinese yuan remained unchanged at 7.2747.

According to two people who spoke to Reuters and had knowledge of the situation, the People’s Bank of China has requested that some of the largest lenders in the nation hold off from immediately squaring their foreign currency holdings in the market and instead continue to maintain open positions for the time being to reduce the amount of downward pressure on the yuan.

Chip designer Arm Holdings (ARM.O) will begin trading on Thursday during the U.S. session. The company’s initial public offering (IPO) price of $51 per share gave it a value of $54.5 billion. The numbers for retail sales are also expected.

Oil prices are soaring on the commodities markets as Saudi Arabia and Russia have agreed to continue output reductions until the end of 2023. The price of a barrel of Brent oil has increased by thirty percent in the last three months, reaching $92.32.

“The market remains beholden to Saudi Arabia’s oil policy,” stated experts at ANZ Bank. They claimed that Brent prices may exceed $100 if cutbacks were prolonged until the first half of next year.

Gas prices were volatile due to strikes that started at production sites in Australia, which make up more than five percent of the world’s supply. On Wednesday, benchmark European gas prices saw a 6.5% increase over the previous day.