Asian stocks mixed after US, China CPI surprise; Nikkei extends rally

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Asian stocks mixed after US, China CPI surprise; Nikkei extends rally
Credit: © Reuters. Most Asian stocks moved in a tight range on Friday as investors digested mixed inflation readings from the U.S. and China, while Japan’s Nikkei 225 index continued to blaze past its global peers.

Regional stocks took a weak overnight lead-in from Wall Street, as data showed U.S. consumer price index (CPI) inflation grew slightly more than expected in December, dampening hopes that the Federal Reserve will begin trimming interest rates early this year.

But traders still appeared to be maintaining bets on a March rate cut, at least according to the CME Fedwatch tool . This notion limited major losses in U.S. and Asian stock markets, with traders still holding out for an eventual reduction in U.S. rates this year.

Japanese stocks surge past 34-year highs, set for stellar week

Japan’s Nikkei 225 was the best performer in Asia this week, rising 1.2% on Friday to a new 34-year high at nearly 35,500 points. Expectations of an ultra-dovish Bank of Japan were a key driver of the Nikkei’s rally, especially as markets awaited more stimulus measures in Japan following a devastating earthquake.

Signs of weakness in the Japanese economy also persisted, as data on Friday showed the country’s current account shrinking more than expected in November. This data was preceded by soft inflation and wage growth readings earlier in the week.

The Nikkei was set for a 6.2% jump this week- its best weekly gain since March 2022. The TOPIX index, which covers a broader range of Japanese stocks, rose 0.3% on Friday and was set to add 4.1% this week. The index was also at its highest level since 1990.

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Chinese stocks rise as CPI inflation sees mild pick-up

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose 0.4% and 0.5%, respectively, recovering further from multi-year lows after data showed CPI inflation rose slightly in December. Hong Kong’s Hang Seng index rose 0.1%.

While broader Chinese inflation still remained deep in disinflationary territory, the mild pick-up in CPI inflation spurred some hopes that consumer spending was on a path towards recovery from COVID-era lulls. The increase in CPI was driven chiefly by higher holiday spending, particularly on travel and shopping.

But whether the reading signaled a bigger recovery or was a one-off rise remains to be seen.

The outlook for the Chinese economy still remained weak. Producer price index (PPI) inflation shrank for a fifteenth consecutive month in December.

Focus is now on key fourth-quarter gross domestic product data due next week.

Broader Asian markets tread water, tracking a similar overnight performance on Wall Street. Most regional stocks were also set for mild weekly losses, as growing doubts over U.S. interest rate cuts kept traders wary of risk-driven assets.

Australia’s ASX 200 fell 0.1%, while South Korea’s KOSPI lost 0.2%.

Futures for India’s Nifty 50 index pointed to a flat open after index heavyweight Infosys Ltd (NS: INFY ) logged a weaker profit for the December quarter. But the firm’s American Depository Receipts (NYSE: INFY ) shot up nearly 4% in overnight trade.

Indian CPI inflation data is also on tap later in the day.

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