Asia shares stumble on weak China data, U.S. dollar heavy

A man looks at stock market monitors in Taipei, January 22, 2008. REUTERS/Nikki Loh/File Photo

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  • MSCI Asia excluding Japan fell after a jump on Wednesday
  • Strong US inflation data is not expected to change interest rate expectations
  • Chinese lending data spurs policy easing expectations
  • The dollar is trading heavily below the main support level

SHANGHAI (Reuters) – Asian shares were dragged down by weak Chinese economic data on Thursday, although investors appeared comfortable that US inflation data was not hot enough to force the Federal Reserve to impose faster monetary tightening.

Data showed that US consumer price inflation was at its highest level in nearly 40 years, overnight, but it was not surprising and kept expectations intact for a Fed cut or schedule for its first rate hike as early as March. Read more

Asian stocks fell in line with Chinese stocks, after data showed bank lending from the mainland fell more than expected in December, causing the real estate and consumption sectors to slump.

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China’s blue-chip stocks (.CSI300) fell 1.3%, while the broader MSCI Asia-Pacific shares outside Japan (.MIAPJ0000PUS) settled after posting its biggest daily gain in a month on Wednesday. Japan’s Nikkei (.N225) lost nearly 1% after rising nearly 2% the day before.

European stock futures pointed to a tepid open in those markets, and the dollar was hovering near a two-month low of 94.97.

“The US dollar is a countercyclical currency that is declining as the global economy recovers,” Joseph Caporso, head of international economics at the Commonwealth Bank of Australia, said in a note.

Jim McCafferty, joint head of Asia Pacific equity research at Nomura, said markets in Asia, where inflation pressures have generally been more subdued in major economies, could provide attractive opportunities for hedging risks.

“If you are a global investor and you see very large gains in the US stock market during 2021, if you see inflation as a threat, it could be tempting a lot of investors to reallocate money away from developed stock markets in the West into a mix of developed and developing markets in the East Asia “.

The uneven performance in Asia was followed by small gains on Wall Street overnight, with the S&P 500 (.SPX) up 0.28% and the Nasdaq Composite (.IXIC) up 0.23%. The Dow Jones Industrial Average (.DJI) gained 0.11%.

While longer-term US yields slipped after inflation data on Wednesday, Fed fund futures set nearly four rate hikes this year. Some analysts say there is still room for a rate hike schedule.

“Our outlook for continued cyclical price pressures means we believe the Fed will continue to tighten policy through 2023 by more than investors currently expect,” Jonathan Petersen, markets economist at Capital Economics, said in a note, adding that he expects the US 10-year yield to reach 2.25% by the end of the year, and 2.75% by the end of 2023.

On Thursday, the US 10-year bond yield rose to 1.7499% after falling on Wednesday to close at 1.725%. The policy-sensitive two-year yield rose to 0.9229% from Wednesday’s close of 0.907%.

The dollar was almost flat against the euro at $1.1442, after hitting its lowest level since mid-November in the previous session. Overnight, it was also down against the yen, falling through the support around 115 to 114.38 yen, its lowest in more than two weeks. She last bought 114.62 yen.

Oil prices fell, a day after hitting their highest levels in nearly two months on the back of a weak dollar, dwindling supply, and with investors betting that the spread of the coronavirus variable Omicron will have a relatively limited economic impact.

Global benchmark Brent crude fell 0.07% to $84.61 a barrel, and US West Texas Intermediate crude fell to $82.58 a barrel.

Spot gold settled at $1,824.54 an ounce.

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(Reporting by Andrew Galbraith), Additional reporting by Vidya Ranganathan in Singapore. Editing by Anna Nicholas Da Costa and Shri Navaratnam

Our Standards: Thomson Reuters Trust Principles.


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