Japan stocks set to dip; Wall Street gains despite hot U.S. inflation data

SINGAPORE — Japan markets were set to dip on Thursday even after Wall Street saw gains despite a red-hot inflation report that set market expectations for rate hikes. Meanwhile, Covid worries also came back into focus as the World Health Organization warned that omicron cases are "off the charts."

The Nikkei futures contract in Chicago was at 28,675 while its counterpart in Osaka was at 28,650. That compared against the Nikkei 225's last close at 28,765.66.

Australia's ASX 200, however, rose 0.35% in early trading.

In earnings, Taiwan's TSMC is set to report fourth-quarter results on Thursday.

Investors will keep an eye on Covid developments, as the World Health Organization reported a record 15 million new Covid-19 cases globally for a single week, as omicron rapidly replaces delta as the dominant variant across the globe.

Data on Wednesday showed that inflation in the U.S. rose 7% during December, the highest since 1982. However, stocks rose despite that report.

The S&P 500 added roughly 0.28% to 4,726.35, and the Nasdaq Composite rose 0.23% to 15,188.39 for its third straight positive day. The Dow Jones Industrial Average, which shuffled between modest gains and losses through the session, finished with a gain of 38.3 points, or 0.11%, at 36,290.32.

That inflation data, which comes amid already-rising prices in recent months, set the stage for a case for hiking rates, said ANZ Research analysts Brian Martin & Daniel Hynes said in a Thursday note.

"US CPI inflation hits 7.0% y/y in December and is likely to be in the 7–8% range for several months yet – reinforcing the need for interest rate hikes by the Fed, starting in March," they said. "Capping inflation is the Fed's key priority for 2022."

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 94.988 — continuing its decline from levels above 95 in the past week.

The Japanese yen traded at 114.64 per dollar, as it strengthened from levels above 115 in the previous sessions. The Australian dollar rose to $0.7284.