Volkswacht Bodensee - Asian stocks edge higher, with all eyes on Fed rate path

The data showed US yearly inflation slowing less than expected and monthly inflation rising, stoking fears that the US Federal Reserve would continue its aggressive tightening of monetary policy.

On Thursday, bourses in Tokyo, Hong Kong and Seoul opened cautiously up.

Analysts said markets were rebounding from the steep losses that followed the inflation data, and to price in an expected 75 basis-point interest rate hike by the Fed at a meeting next week.

The release of US producer price data also affected market sentiment, showing producer costs dropping for the second straight month, mainly driven by falling US fuel prices.

"Stock markets have stabilised a little after Tuesday's rout which saw risk assets pummelled across the board," said Craig Erlam, senior market analyst at OANDA.

Tokyo -- the previous day's biggest loser in Asia -- rebounded slightly on Thursday but investors remained wary of the speed and degree of future US rate hikes.

"Investors remain deeply cautious about potentially excessive monetary tightening in the United States", Okasan Online Securities said in a note.

On Wednesday, Wall Street stocks rose as investors prepared for next week's Fed decision, with the Dow rising 0.1 percent and the S&P 500 gaining 0.3 percent.

Any US interest rate hike tends to strengthen the dollar, and Asian currencies remain at risk from the strong greenback.

On Thursday, the Australian dollar traded near a two-year low, with the yen at near 143 to the US dollar.

A day earlier, Japan's central bank conducted a "rate check" operation on the yen, a move seen as a precursor to possible intervention, and which served to bring the currency back from the 145 level that is widely seen as a threshold by the market.

- 'Front-running' predictions -

Global consumer prices have soared for months, exacerbated by Russia's invasion of Ukraine -- which has hiked energy and food costs -- and because of supply chain strains and Covid lockdowns in China.

Analysts say markets have been trying to "front-run" predictions of when inflation will peak.

"There appears to have been a tendency in recent months to front-run certain releases in the hope that it's going to prove to be the 'pivot' moment when everything starts to look up, central banks can ease off the brake and risk assets will have bottomed," said OANDA's Erlam.

All eyes are now firmly on the Fed's meeting next week, where another 75 basis-point rise is widely expected, after two consecutive increases of the same size.

Following the US inflation data, however, some analysts said it could rise by a full percentage point.

Aggressive interest rate tightening by central banks is slowing down major economies, as authorities attempt to stop them from overheating and tame sharp price rises.

On Wednesday, UK inflation slowed to 9.9 percent in August, but remained close to 40-year highs.

The Bank of England is expected to institute another rate hike next week.

"(The UK inflation figure is) not exactly cause for celebration, nor is it likely the peak, but you have to take your wins where you can these days," said Erlam.

"The data also won't in all likelihood change the outcome of the BoE meeting next week, with 75 basis points now heavily backed but 50 also possible."

- Key figures at around 0230 GMT -

Tokyo - Nikkei 225: UP 0.4 percent at 27,918.46

Hong Kong - Hang Seng Index: UP 0.3 percent at 18,896.92

Shanghai - Composite: DOWN 0.6 percent at 3,218.07

New York - Dow: UP 0.1 percent to 31,135.09 points (close)

London - FTSE 100: DOWN 1.5 percent at 7,277.30 (close)

Euro/dollar: UP at $0.9976 from $0.9972

Pound/dollar: UP at $1.1534 from $1.1532

Euro/pound: UP at 86.50 pence from 86.46 pence

Dollar/yen: UP at 143.28 yen from 142.20 yen

Brent North Sea crude: DOWN 0.1 percent at $93.99 per barrel

West Texas Intermediate: UP 0.02 percent at $88.50 per barrel

M.Odermatt--BTB