Ahead of US inflation news, Asia markets surge; the yen falters

 Ahead of US inflation news, Asia markets surge; the yen falters

Tokyo's Nikkei rose 0.36%, while MSCI's broadest index of Asia-Pacific equities outside Japan saw a rise of 0.49%. S&P/ASX 200 index for Australia was up 0.61%.

Ahead of an important U.S. inflation data that may significantly impact the Federal Reserve's policy stance, Asian markets edged up on Tuesday in cautious trade. Meanwhile, the weak yen flirted with one-year lows, returning to the intervention zone.

Tokyo's Nikkei rose 0.36%, while MSCI's broadest index of Asia-Pacific equities outside Japan saw a rise of 0.49%. S&P/ASX 200 index for Australia was up 0.61%.

After hitting a one-year low of 151.92 on Monday, the Japanese yen was trading at 151.71 per dollar during Asian hours. Should the damaged currency fall below the 151.94 low from the previous year, it would be a new 33-year low. *FRX*

Reiterating his regular theme that extreme swings were undesirable, Japanese Finance Minister Shunichi Suzuki said said Tuesday that the government will take all necessary actions in response to currency movements.

Investors are focused on Tuesday's U.S. inflation data, which is scheduled later in the day. This is because policymakers and Federal Reserve Chair Jerome Powell have expressed uncertainty about whether interest rates are high enough to control inflation.

According to Reuters surveyed economists, headline U.S. consumer price inflation dropped from 3.7% in September to 3.3% in October, but the so-called core inflation rate—which excludes volatile components—remained constant.

According to ActivTrades dealer Anderson Alves, "this data holds significant power over the Federal Reserve's future policy direction."

A miss might give markets the impression that the Fed may hold off on additional rate rises, particularly in the less volatile core inflation component. On the other hand, a beat may cause a discernible repricing of the U.S. short-term interest curve."

The blue-chip CSI 300 Index in China increased by 0.40%, while the Hang Seng Index in Hong Kong gained 0.57%. This was in anticipation of a meeting between the leaders of the two biggest economies in the world later this week.

The benchmark 10-year Treasury yield increased by 2.2 basis points to 4.654%, just below its one-week high of 4.696% on Monday.

Citing significant budget deficits and a drop in debt affordability, Moody's downgraded the outlook for the U.S. AAA credit rating on Friday from "stable" to "negative". Following competitor Fitch's August downgrading of the U.S. top credit rating, Moody's made its judgment.

According to Dalma Capital CIO Gary Dugan, the action highlights the serious structural issues that the US economy faces, including unmanageable debt levels and budgetary laxity.

"With the elections for president just a year away, it's unlikely that government officials will announce significant proposals for addressing these issues, given the unpopularity of guaranteeing spending cuts and tax increases," Dugan said.

Should Congress fail to enact a temporary budget agreement, the United States may experience another partial government shutdown starting on Saturday.

YEN WATCH SUMMARY

Due to the widespread yen fall, traders are once again watching to see whether the Japanese government would step in. Compared to the dollar, the currency has decreased by almost 14% so far this year.

After hitting the year-to-date low on Monday during New York hours, the yen had a temporary increase versus the dollar, which experts ascribed to a rush of trade in options that are due this week.

Standard Chartered's Nicholas Chia, a macro analyst, said that the yen's fluctuations indicate that investors are wary of intervention risks, which partially supports government efforts by stifling unwarranted speculation.

Japan recently changed its position in the currency market in October of last year, purchasing yen and selling dollars. According to intervention statistics made public last month, since then, the authorities have refrained from taking any further such measures.

The dollar index, which compares the value of the US dollar to six competitors, increased by 0.057% to 105.69. With the index down 1% in November, its three-month winning run is likely to come to an end.

Following an OPEC report stating that market fundamentals remained solid, oil prices marginally increased. While Brent remained steady for the day, U.S. crude increased by 0.26% to $78.46 per barrel.