SYDNEY, Feb 13 — Asian shares slipped today as investors hunkered down for US inflation and retail sales data that could jolt the outlook for interest rates globally, while tempering or accelerating the recent spike in bond yields.
An air of geopolitical mystery was added by news the U.S air force had shot down a flying object near the Canadian border, the fourth object downed this month.
Officials declined to say whether it resembled the large white Chinese balloon that was shot down earlier this month.
In any case, it provided an extra excuse for caution and MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1 per cent, after losing 2.2 per cent last week.
Japan’s Nikkei fell 0.5 per cent, and South Korea 0.3 per cent. S&P 500 futures were off 0.2 per cent, while Nasdaq futures eased 0.3 per cent.
The near-term direction for assets could well be determined by US data on consumer prices and retail sales this week, with much resting on whether inflation continued to slow in January.
Median forecasts are for headline and core consumer prices to rise 0.4 per cent for the month, with sales rebounding by 1.6 per cent.
Risks could be to the upside given a re-analysis of seasonal factors released last week saw upward revisions to CPI in December and November. That lifted core inflation on a three-month annualised basis to 4.3 per cent, from 3.1 per cent.
There were also changes to the weightings for shelter costs and used car prices which might bias the CPI higher.
Bruce Kasman, head of economic analysis at JPMorgan, expects core CPI to rise 0.5 per cent and sales to jump 2.2 per cent, underlining the message of resilience from the bumper January payrolls report.
“Developed market labour markets have tightened in recent months against our expectations of easing,” says Kasman.
“The latest news reinforces conviction that we are not on a soft-landing path and that a recession will eventually be necessary to bring inflation back to central bank comfort zones.”
Markets have already sharply raised the profile for future tightening by the Federal Reserve, with rates now seen peaking up around 5.15 per cent and cuts coming later and slower.
There is also a full slate of Fed officials speaking this week to provide a timely reaction to the data.
Yields on 10-year Treasuries US10YT=RR are at five-week highs of 3.75 per cent, having jumped 21 basis points last week, while two-year yields hit 4.51 per cent US2YT=RR.
That shift helped stabilise the dollar, especially against the euro which slipped 1.1 per cent last week to hover at US$1.0670, well away from its early February high of US$1.0987.
The dollar also got a leg up on the yen on Friday when reports emerged Japan’s government was likely to appoint academic Kazuo Ueda as the next Bank of Japan governor.
The surprise news sparked speculation about an early end to the BOJ’s super-easy policies, though Ueda himself later said it was appropriate to the current stance.
The dollar was last holding at ¥131.50, after bouncing from a low of 129.80 on Friday.
The rise in yields and the dollar has been a burden for gold prices, which was stuck at US$1,862 an ounce compared to an early February peak of US$1,959.
Oil prices eased a touch after jumping on Friday when Russia said it planned to cut its daily output by 5 per cent in March after the West imposed price caps on Russian oil and oil products.
Brent dipped 36 cents US$86.03 a barrel, while US crude fell 35 cents to US$79.37. — Reuters