Bullock warns Middle East-driven inflation risks now materialising
RBA Governor Bullock testified that inflation risks flagged in August are materialising, with Middle East conflict and AI boom pushing up prices.
Asia-Pacific markets: Oil steady near highs, Japan data misses, crypto falls on US Senate vote.
Highlights:
On Tuesday, oil prices remained near recent highs as private data from the American Petroleum Institute indicated increases in inventories of crude, gasoline, and distillates, ahead of the official US government report due Wednesday morning.
In the Middle East, a coalition led by Saudi Arabia reported that it intercepted a Houthi drone before it could enter restricted airspace around Mecca. The coalition called protecting the two holy mosques a 'red line' and stated it would take appropriate actions against the group.
Turning to data, Japan's machinery orders for July came in below expectations, and the nation's August trade deficit widened more than anticipated as imports grew faster than exports. These numbers injected caution into Japan's growth and capex outlook. The yen weakened briefly after the release but later bounced back to trade nearly unchanged.
Major currency pairs traded within a subdued range ahead of the Federal Open Market Committee decision, as markets broadly price in a rate hike. Likewise, equities in Japan and South Korea moved in narrow, cautious ranges as investors awaited the FOMC outcome.
Crypto markets weakened on Tuesday after US developments. The Senate did not advance the Clarity Act via a cloture vote, which prevented establishing a unified federal regulatory framework for crypto, leaving oversight under current SEC and CFTC rulemaking. Bitcoin's losses deepened on the news, although markets had largely anticipated the outcome.
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RBA Governor Bullock testified that inflation risks flagged in August are materialising, with Middle East conflict and AI boom pushing up prices.
Japan's headline CPI came in at 1.9% y/y in August, below the 2.0% forecast. Core-core CPI also missed expectations at 1.7%.
New Zealand's August trade deficit was -1349mn, with imports at 8bn and exports at 6.66bn. Food price inflation held at 1.9% y/y, unchanged from July.
The Fed raised rates by 25 bps to 3.75-4.0%, a unanimous vote under Warsh. Analysts split on inflation's duration, with UBS seeing gold pressure near-term but…