Asian Shares Post Small Gain, Yen Weakens Past 159: Markets Wrap

“The initial excitement sparked by a cooler-than-anticipated core CPI was short-lived,” said Jose Torres at Interactive Brokers. “The reversal was influenced, in part, by the report’s failure to pull forward the next expected rate reduction from June to April, as fixed-income watchers project Powell’s December cut will be his last at the helm.”

Following JPMorgan’s results Tuesday, earnings from megabank rivals Bank of America Corp., Wells Fargo & Co., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley are slated for Wednesday and Thursday. The group is expected to post its second-highest annual profit ever, boosted by Trump’s policy changes.

Traders also are mindful of the potential for a US Supreme Court ruling Wednesday on tariffs the White House has been enforcing. An adverse ruling could draw a negative market reaction, even as the administration has alternative legal avenues for most of the levies.

Elsewhere, Brent crude notched its biggest four-day gain since June as Trump ramped up rhetoric on Iran, while silver also extended its recent rally to cap its best three-day streak on record.

What Bloomberg Strategists say…

USD/JPY looks likely to climb above 160 and keep going higher. Prime Minister Sanae Takaichi’s reported plan for a snap election was the main initial driver, and now a more hawkish Fed stance on US interest rates and the Iran-fueled increase in oil prices threaten Japan’s currency with a triple whammy.

— Garfield Reynolds, MLIV Asia Team Leader. Click here for the full analysis.

Attention in Asia will once again be on Japan, where Prime Minister Sanae Takaichi’s reported plan for a snap election fueled a rally in stocks while pushing down bonds and driving the yen deeper into the intervention-risk zone. Japanese five-year yields rose to 1.615%, the highest since the tenor’s 2000 debut.

Success at the polls for Takaichi, who ascended to the premiership in October, would provide a mandate for her to continue hawkish diplomacy and pro-stimulus policies.

Back to the US inflation data, the December core CPI, excluding the often volatile food and energy categories, increased 0.2% from November. On an annual basis, it advanced 2.6%, matching a four-year low.

The reading is perhaps a more convincing sign that inflation is on a downward path, since a number of caveats in November’s report contributed to a significant pullback in the annual core CPI.

“Given the quirks of November’s dual-month report, it’s surprising not to see more numerous large month-over-month readjustments,” said Stephen Kates at Bankrate.

“Consumers can breathe a sigh of relief that we didn’t snap back to the 3% annual inflation rate. Although today’s reading doesn’t demonstrate additional progress for inflation, it doesn’t take a step backwards either.”