Asian stocks gave up much of their gains as traders weigh the potential for US inflation data due Wednesday to spur volatility across global markets.
(Bloomberg) — Asian stocks gave up much of their gains as traders weigh the potential for US inflation data due Wednesday to spur volatility across global markets.
A gauge of Asia Pacific equities and US futures were flat, a sign that investors were holding back on taking new positions before the release of a data point seen as crucial for the next Federal Reserve policy decision. Treasury two-year yields remained above 4%, while the dollar held Tuesday’s loss.
US headline inflation is expected to slow, with the core reading forecast to ease both on a monthly and yearly basis. Expect the S&P 500 index to drop at least 2% should the year-over-year inflation rate come in above the previous reading of 6%, Goldman Sachs Group Inc. partner John Flood wrote.
Few investors have conviction on what to expect from the actual inflation report, according to Tom Lee, head of research at Fundstrat. “In other words, most are ‘flat’ going into a report with an uncertain outcome,” he wrote in a note.
Fed officials offered differing comments on Tuesday about further policy increases, with Chicago Fed President Austan Goolsbee arguing that the central bank should exercise “prudence and patience.” New York Fed President John Williams said officials have more work to do to tackle inflation.
Swap contracts are pricing in about three-in-four odds of another quarter-point Fed hike next month. Traders predict US rates will peak around 5%, with policymakers then cutting by at least 50 basis points by year-end.
Some investors see the situation differently.
“The inflation picture for us in the US is still very, very mixed,” Dwyfor Evans, head of Asia-Pacific macro strategy at State Street Global Markets, said on Bloomberg Television. “It’s certainly not consistent with a rapid adjustment to the downside in interest rates. We don’t buy that view at all.”
In currency markets, Group-of-10 currencies traded in a tight range against the dollar, while the yen fell into a fifth day. China’s 10-year bond yields fell to the lowest since November on expectations of more monetary easing.
“The risk to the dollar from the inflation data is tilted toward the downside,” said Fukuhiro Ezawa, head of financial markets Japan at Standard Chartered Bank in Tokyo.
Japanese stocks led gains in Asia, with sentiment boosted by Warren Buffett saying that he’s mulling buying more equities in the country.
The International Monetary Fund said in a report Tuesday it’s too soon to sound the all-clear from the turmoil that’s shaken the financial system, saying the banking breakdowns will likely be a drag on global economic growth. US banks on Friday will kick off what’s forecast to be the worst earnings season since the depths of the pandemic.
Elsewhere, Bitcoin dipped, after climbing above $30,000 on Tuesday for the first time in 10 months. Oil steadied as traders tracked supply constraints and gold edged higher.
Key events this week:
- Canada rate decision, Wednesday
- US FOMC minutes, CPI, Wednesday
- Richmond Fed’s Thomas Barkin speaks, Wednesday
- China trade, Thursday
- US PPI, initial jobless claim, Thursday
- US retail sales, business inventories, industrial production, University of Michigan consumer sentiment, Friday
- Major US banks JPMorgan Chase, Wells Fargo and Citigroup report earnings, Friday
Some of the main market moves as of 8:13 a.m. Tokyo time:
Stocks
- S&P 500 futures were little changed as of 1 p.m. Tokyo time. The S&P 500 was little changed
- Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.7%
- Japan’s Topix index rose 0.7%
- Hong Kong’s Hang Seng Index fell 0.6%
- China’s Shanghai Composite Index rose 0.5%
- Australia’s S&P/ASX 200 Index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0924
- The Japanese yen fell 0.1% to 133.85 per dollar
- The offshore yuan was little changed at 6.8934 per dollar
- The Australian dollar rose 0.2% to $0.6665
Cryptocurrencies
- Bitcoin fell 0.8% to $29,953.43
- Ether fell 1.6% to $1,864.09
Bonds
- The yield on 10-year Treasuries was little changed at 3.43%
- Japan’s 10-year yield advanced one basis point to 0.46%
- Australia’s 10-year yield advanced three basis points to 3.25%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold rose 0.7% to $2,017.24 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Stephen Kirkland, Masaki Kondo and Joanna Ossinger.
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