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(Bloomberg) — Stocks in Asia mostly pointed higher after US equities recovered and bonds climbed ahead of key inflation data that will help shape the outlook for the Federal Reserve’s next steps.

Futures for Hong Kong and Australia indicated gains, while those for Japan showed a small decline, with trading in the region likely to be muted by holidays in countries including Singapore. The S&P 500 fell as much as 0.8% before finishing 0.1% higher. Treasuries advanced, with 10-year yields dropping from the highest levels this year.

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With no relevant economic data on schedule, US traders positioned for Wednesday’s consumer price index. Markets have been tempering bets on Fed cuts as economic data remain strong, with officials pushing back against the need for easing.

“Investors are increasingly calling a June pivot into question, given the resiliency of the economy,” said Marta Norton, chief investment officer Americas at Morningstar Wealth. “A delay is within the range of possible outcomes, particularly if we see March inflation data surprise to the upside.”

After struggling throughout most of the session, the S&P 500 rose back above the 5,200 mark, with Tesla Inc. leading gains in megacaps. Nvidia Corp. sank as Intel Corp. unveiled a new version of its artificial-intelligence chip. US 10-year yields fell six basis points to 4.36% and Australia’s were down six points on Wednesday. Oil held a two-day drop and gold traded near a fresh record. 

In Asia, central banks in New Zealand and Thailand are expected to keep rates unchanged at meetings on Wednesday.

“CPI is the critical number this week,” said Andrew Brenner at NatAlliance Securities. “The fear is that CPI has continued to be a thorn in the side of the Fed. But positioning is strongly bearish, and to quote some of the old traders we worked with in the past, ‘whatever hurts the most traders, when they are strongly positioned, is what happens’.”

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The US inflation prints for March and April will play an outsized role in determining whether the Fed proceeds to cut rates in June, according to Krishna Guha at Evercore. 

“We think the hurdle is not crazy severe and the odds are the data will come in good enough to go ahead,” Guha said.

The swaps market is pricing in around 65 basis points of Fed rate cuts by the end of this year — which is less than what the central bank forecast last month. 

Fed Bank of Atlanta President Raphael Bostic reiterated his expectation for one rate cut this year, but added he’s open to changing his view to later or additional reductions should the economic picture change. 

To Mohamed El-Erian, the Fed’s longer-run inflation expectations should be revised higher as macro conditions — like supply chains and productivity — evolve. 

“Inflation will be sticky,” the president of Queens’ College, Cambridge and a Bloomberg Opinion columnist told Bloomberg Television. “But that shouldn’t stop the Fed, because the 2% inflation target is too tight for a global economy going through a major rewiring.”

While bond yields are likely to remain volatile in the near term as markets shift views on the Fed’s path, UBS’s Chief Investment Officer continues to see an attractive risk-reward outlook for quality bonds, including government and investment-grade corporate debt.

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“We continue to favor quality bonds in our global portfolios and recommend investors lock in currently attractive bond yields,” said Solita Marcelli at UBS Global Wealth Management. “We prefer those with maturities in the 1–10-year bracket and see value in sustainable bonds.”

Key events this week:

• Japan PPI, Wednesday
• Canada rate decision, Wednesday
• US CPI, Fed minutes, Wednesday
• Chicago Fed President Austan Goolsbee speaks, Wednesday
• China PPI, CPI, Thursday
• Eurozone ECB rate decision, Thursday
• US initial jobless claims, PPI, Thursday
• New York Fed President John Williams speaks, Thursday
• Boston Fed President Susan Collins speaks, Thursday
• China trade, Friday
• US University of Michigan consumer sentiment, Friday
• Citigroup, JPMorgan and Wells Fargo due to report results, Friday.
• San Francisco Fed President Mary Daly speaks, Friday

Some of the main moves in markets:

Stocks

• Hang Seng futures rose 0.5% as of 8:30 a.m. Tokyo time
• S&P/ASX 200 futures rose 0.3%
• Nikkei 225 futures fell 0.3%
• S&P 500 futures were little changed. The S&P 500 rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The Australian dollar was little changed at $0.6628

Cryptocurrencies

• Bitcoin was little changed at $69,162.98
• Ether fell 0.3% to $3,502.65

Bonds

• The yield on 10-year Treasuries declined six basis points to 4.36%
• Australia’s 10-year yield declined six basis points to 4.11%

Commodities

• West Texas Intermediate crude rose 0.1% to $85.34 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

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