Asia stocks surge on Fed rate-cut bets as inflation data clears path for December cut

Asian markets woke up Thursday morning to good news from across the Pacific, and they ran with it. The previous night, the Federal Reserve had gotten exactly what it needed to justify cutting interest rates: American consumer prices rose 0.3 percent in November, matching forecasts to the decimal and showing no sign of the stubborn inflation that had kept policymakers cautious for months. That single data point cleared away what traders had been calling the last real obstacle to a rate cut, and the buying began in earnest.

Tokyo's Nikkei index jumped 1.5 percent, breaking through 40,000 for the first time since mid-October. The rally was led by semiconductor stocks, which had been battered by rate-hike fears. But there was another force at work: the yen was weakening, which meant Japanese exporters would see their overseas earnings look bigger when converted back home. At the same time, traders were pulling back their bets on a Bank of Japan rate increase scheduled for December 19. The odds of that hike had fallen to just 27 percent.

The broader Tokyo market, measured by the Topix, climbed 1.2 percent. South Korea's KOSPI added 0.7 percent. Taiwan's benchmark rose 1 percent. Hong Kong's Hang Seng moved up 0.4 percent, while mainland Chinese blue chips gained 0.2 percent. The moves were not uniform, but the direction was clear: money was flowing back into Asian equities.

Australia's currency told its own story. The Australian dollar surged after the country reported stronger-than-expected employment figures. The rebound mattered because the Aussie had taken a hit the day before, when reports suggested China might let its currency weaken further in the year ahead. Since China is Australia's largest trading partner and the Australian dollar often moves in tandem with the yuan, that prospect had spooked investors. Now, with solid domestic data in hand, the currency bounced back.

Wall Street had set the tone overnight. The Nasdaq, heavy with technology stocks, had jumped 1.8 percent and closed above 20,000 for the first time in history. The S&P 500 climbed 0.8 percent. Chris Weston, head of research at Pepperstone, captured the mood: the inflation reading had "lit a flame in U.S. equity," he said, and with that last major worry removed, traders could now focus on the traditional year-end rally without fear of policy surprises.

Market pricing reflected the shift. Traders were now laying 97 percent odds on a quarter-point Federal Reserve rate cut on December 18, just days away. That certainty had rippled across the globe, lifting risk appetite in markets that had been nervous about the economic outlook.

But not everything was moving in the same direction. The U.S. dollar held firm near a two-week high, supported by rising Treasury yields. The 10-year yield climbed to 4.28 percent, its highest point since late November, as data showing a widening U.S. budget deficit made investors cautious about the long-term fiscal picture. The dollar index, which measures the greenback against the euro, franc, yen, and three other major currencies, sat at 106.51, little changed from the previous day but still elevated.

The euro and Swiss franc were under pressure as traders braced for rate cuts from the European Central Bank and Swiss National Bank later that same day. Those cuts, potentially as large as half a percentage point, would push those currencies lower relative to the dollar. For now, the market was caught between two competing forces: relief over the Fed's path forward, and caution about the broader economic picture that had forced central banks around the world to consider easing policy.