Asian Stocks Turn Risk-On Ahead of U.S. CPI Reading

© Reuters.

By Ambar Warrick

AiVIF.com-- Asian stock markets rose on Monday as investors awaited more signs that U.S. inflation is cooling, with battered technology stocks gaining the most.

Weakness in the U.S. dollar, as it retreated further from 20-year highs, also benefited risk appetite. But a market holiday in Hong Kong and China kept trading volumes in the region largely muted.

Taiwan’s tech-heavy weighted index was the best performer in the region, rising 1.8%. Indexes in Japan and Australia rose more than 1% each. 

Philippine's PSEi Composite was the best performer in Southeast Asia, adding 1.2%. 

Regional stocks took positive cues from Wall Street’s rally on Friday, where major U.S. indexes snapped a three-week losing streak. Technology stocks, which have been battered by rising U.S. interest rates this year, were the best performers.

Investors are now awaiting key U.S. consumer price index (CPI) data for August, due on Tuesday. The reading is expected to show that U.S. inflation retreated further from 40-year highs hit earlier this year. 

A softer reading is broadly expected to extend a stock market rally, given that it will indicate that steep interest rate hikes by the Federal Reserve this year are working as intended. Easing inflation will eventually see the Fed lower its pace of rate hikes.

But the Fed has indicated that rates will continue to rise sharply in the near-term. Markets are pricing in an over 90% chance that the central bank will raise rates by 75 basis points- the upper end of expectations- when it meets next week. 

Rising interest rates have largely battered Asian stock markets this year, as they narrowed the gap between returns on high and low-risk investments. Technology stocks in particular bore the brunt of this selling.

But easing U.S. inflation could help bring down expectations of higher interest rates eventually, which is expected to be bullish for stock markets.

Asian stock markets still have to contend with slowing economic growth in China, the region’s largest trading hub. Expensive commodity imports, due to strength in the dollar, are also expected to provide economic headwinds in the near-term.