Treasuries Rebound as Traders Trim Fed Cut Bets After Inflation Surprise – Asia Market Wrap

Treasuries edged up to recover some of their tosses from a higher US inflation print, which led traders to trim bets on an interest-rate cut by the Federal Reserve next month.

Bonds inched up across the curve, with yields on the policy-sensitive two-year note falling one basis point to 3.72%. The dollar weakened while the yen led most Group-of-10 currencies higher. Gold rose along with an index for Asian equities. Oil was steady as investors braced for the summit between the US and Russian presidents in Alaska later Friday. Futures for the S&P 500 gained 0.2% and that for European stocks advanced 0.4%.

Shares in Hong Kong weakened 1.2% after data showed China’s economy slowed in July with factory activity and retail sales disappointing, suggesting Donald Trump’s trade war is starting to weigh on the world’s No. 2 economy. Japanese shares rose 1% after the country’s economy expanded faster than expected last quarter.

Risk sentiment had been buoyed in previous days by expectations of monetary easing in the US, with traders fully pricing in a quarter-point reduction. But with US wholesale inflation accelerating in July by the most in three years, traders trimmed the odds of a September rate cut to about 90% from previously fully pricing it in.

The higher-than-expected increase in the US producer price index – which suggests companies are passing along elevated import costs tied to tariffs – halted a Treasuries rally and surprised investors. Traders had piled into bets on a September rate cut, with some wagering on a 50-basis-point move, after a largely benign report on consumer prices this week and comments from Treasury Secretary Scott Bessent in which he said policymakers could bring down borrowing costs as much as 1.5 percentage points.