- MSCI Asia ex-Japan Index down 0.4%
- FX markets stable; T-bills see default risk
- US CPI due at 1230 GMT
SINGAPORE, May 10 (Reuters) – Stocks have struggled to rise in Asia and the dollar held firm on Wednesday ahead of the release of US consumer price data that could shatter hopes of rate cuts if inflation doesn’t ease significantly.
MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) was down on Tuesday and was down another 0.4% on Wednesday. Japan’s Nikkei (.N225) fell 0.3%.
S&P 500 futures were flat and European futures were up 0.1%. A firmer US dollar pushed the euro back below $1.10 to $1.0968.
US CPI data for April is due at 12:30 GMT and economists expect headline CPI to remain steady at 5% yoy and core CPI to ease slightly to 5.5% amid all , which is more persistent, which could nullify bets on falling interest rates.
“That’s the thing that would go away if the CPI numbers were higher,” said ING economist Rob Carnell.
“It doesn’t seem particularly sensible for inflation to come down too slowly, and that could also translate into higher longer-dated government bond yields.”
In interest rate futures, there is about a 60% chance that the Federal Reserve will cut rates in September, according to the CME FedWatch tool.
Treasuries were broadly stable, with the risky confrontation with the upcoming US debt ceiling stimulating demand for safe-haven assets, including bonds, while driving investors out of Treasuries maturing in early June.
President Joe Biden and senior lawmakers have been unable to break the deadlock on raising the US $31.4 trillion debt ceiling but vowed to meet again before June if the Treasury Department forecasts it will struggle to meet its commitments to comply
Benchmark 10-year yields in Asia at 3.517%. Two-year yields came in at 4.049%.
CPI WATCH
China’s weak import numbers for April kept Chinese and Hong Kong stocks depressed for the second straight day as investors fear the reopening recovery is turning into a patchy recovery.
Hong Kong’s Hang Seng (.HSI) fell 0.5%. The Shanghai Composite (.SSEC) fell 1.3% and the yuan fell to a two-week low.
An obvious crackdown on due diligence firms is shaking the sector and unsettling investors. Reuters reported that CICC Capital, a unit of leading Chinese investment bank China International Capital Corp (3908.HK), has stopped working with consulting firm Capvision.
FX markets falter as markets weigh policymakers’ rhetoric against traders’ belief that US interest rates and the dollar should fall.
JP Morgan’s G7 FX Volatility Index hit a one-year low (.JPMVXYG7).
European Central Bank executive board member Isabel Schnabel said on Tuesday expectations for rate cuts had been misplaced but that hadn’t given the euro much of a boost as traders balked at overselling dollars ahead of the CPI data.
The shared currency stayed below $1.10 on Wednesday. The dollar also remained firm at 135.34 yen and has recovered slightly from recent lows in the Aussie, Kiwi and sterling.
“The dollar could see a temporary bounce after the CPI,” said Commonwealth Bank of Australia strategist Joe Capurso.
“But the drama surrounding the debt ceiling and market participants’ focus on rate cuts is unlikely to change much compared to a CPI report. It may take a strong result… to send the dollar significantly higher.”
Earnings for Softbank (9434.T), Panasonic (6752.T) and a handful of major Japanese trading houses are expected after the Tokyo market close on Wednesday.
Brent crude futures fluctuated at $76.90 a barrel. Gold is starting to settle above $2,000 an ounce while Bitcoin has stabilized at $27,732.
Edited by Simon Cameron Moore
Our standards: The Thomson Reuters Trust Principles.
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