(Sept 11): Asian equities were set to edge lower on Thursday after a rally on Wall Street drove stocks and bonds higher as a drop in producer prices supported bets the Federal Reserve (Fed) will resume cutting interest rates next week.

Equity index futures for Australia and Hong Kong slipped, after the S&P 500 rose 0.3% to a new high on Wednesday. The tech-heavy Nasdaq 100 ended the session fractionally higher, with Oracle Corp shares gaining the most since 1992. Broadcom Inc, Palantir Technologies Inc, Advanced Micro Devices Inc and Nvidia Corp all rallied during the session. Treasuries rose across the curve.

The moves reflected fresh optimism that the Fed will cut rates next week after producer prices unexpectedly declined for the first time in four months. The data soothed worries that elevated inflation would create a challenge for policymakers trying prevent a jobs downturn ahead of US inflation figures due later on Thursday.

“Investors are now contemplating the extent to which August’s payrolls, the benchmark revisions, and the producer price index (PPI) should drive a conversation about a 50 basis-point cut next week,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “We are still in the 25-basis-point cut camp. For a half-point to be a real possibility, tomorrow’s (Thursday) core consumer price index (CPI) move will need to underwhelm.”

Monthly US producer prices excluding food and energy declined 0.1% in August from the prior month, falling short of consensus estimates of a 0.3% increase, while July’s figure was also revised down. The data may indicate firms are trying to stay competitive to maintain market-share, said Neil Dutta at Renaissance Macro Research. 

“The Fed should cut 50 basis points next week — but I don’t think they will,” Dutta said. “The doves on the Federal Open Market Committee have a very strong case to make. The hawks will argue that the unemployment rate is still low, financial conditions are loose, and that there is still upward inflation pressure in front of us due to tariffs.”

In Asia, data set for release on Thursday includes inflation expectations in Australia and industrial production in Malaysia. Later on Thursday, the European Central Bank is expected to keep interest rates unchanged.

Alibaba Group Holding Ltd is seeking to raise US$3.17 billion in an offering of zero-coupon convertible notes that’s set to be the year’s biggest, according to terms of the deal seen by Bloomberg News. The company’s American depositary receipts fell 2.2% in New York trading on Wednesday.

Elsewhere, Trump and Indian Prime Minister Narendra Modi pledged to talk and resume trade negotiations, signalling a possible thaw after weeks of a blistering fight over tariffs and Russian oil purchases.  

US inflation

The core CPI, a measure of underlying inflation excluding food and fuel, probably rose 0.3% for a second month, according to the Bloomberg survey median estimate. A weaker-than-expected reading may prompt further speculation for a 50-basis-point Fed cut next week.

The combination of a moderation in jobs growth and still manageable inflation should keep the Fed on track to cut rates, with a 25-basis-point cut expected in September to be followed by three additional consecutive cuts of the same size by January 2026, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.

“Tomorrow’s CPI will carry more weight, but today’s PPI print essentially rolled out the red carpet for a Fed rate cut next week,” said Chris Larkin at E*Trade from Morgan Stanley. “After last week’s jobs report, though, the market was already expecting the Fed to begin an easing cycle, so it remains to be seen how much of a near-term impact this will have on sentiment.”

In commodities, gold traded back towards its record high Wednesday, an index of the dollar was little changed and oil prices climbed for a third session as investors weighed President Donald Trump’s next moves to pressure Russia, raising concerns over crude supplies.

Meanwhile, Mexico is looking to apply tariffs of as much as 50% on cars, auto parts, steel and textiles from China and other countries with which it does not have a trade agreement, according to Economy Minister Marcelo Ebrard. 

Uploaded by Isabelle Francis