Asia wrap: The trend is your happy friend today

Contrary to all your preconceptions about how markets operate, especially around inflation beats and misses, yields have temporarily experienced a surprising downswing in relief rally fashion as core inflation printed down year on year, suggesting the trend is your happy stock market friend today.

The still relatively moderate core inflation reading for August—the third month in a row—combined with the cooling labour market seen in the August Employment Report likely seals the deal for a rate-hike pause at the September FOMC meeting.

Nevertheless, given the disconcerting uptick in headline inflation and the ongoing ascent of oil prices, the Federal Reserve is likely to maintain the option of another rate hike should the trend of inflation moderation witnessed over the summer fail to persist. Even if a hike does not materialize, a move to lower the current target range of 5.25%-5.50% is unlikely to begin until about June 2024, given the expected sluggish path of inflation back to the target.

Still, Mega-cap Tech stocks- traditionally sensitive to higher inflation outperform today as bond yields slip. This suggests that markets may have largely anticipated a slightly hot inflation report and are not reading much about future monetary policy.