SINGAPORE, May 10 (Reuters) – Stocks struggled to move in Asia and the dollar strengthened on Wednesday ahead of US consumer price data that could hurt hopes of an interest rate cut later this year if Inflation fails to show much decline.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell on Tuesday and was down 0.3% early Wednesday. Japan’s Nikkei (.N225) fell 0.4%.
The S&P 500 (.SPX) fell 0.5% overnight and S&P 500 futures were steady in the Asian morning. A stronger US dollar pushed the euro below $1.10 to $1.0971.
April US consumer prices data is due at 1230 GMT and economists expect headline CPI to hold steady at an annualized 5% and core CPI to moderate from very low to 5.5%, although anything sticky could confound a drop in interest rates .
ING economist Rob Carnell said, “If the CPI number comes in on the higher side, this is the thing that will be out.”
“It doesn’t look particularly sensible if inflation is falling very slowly and it could also feed into longer-term Treasury yields.”
Treasuries were largely steady overnight, although debt-ceiling brinksmanship is waging war in the bill market as investors avoid bills maturing in early June.
According to analysts at NatWest Markets, demand in the three-year auction was strong with a bid-to-cover ratio of 2.93 – the highest since 2018.
The benchmark 10-year yield in Asia was held at 3.507%. The two-year yield was 4.018%.
President Joe Biden and top lawmakers failed to break the impasse over raising the $31.4 trillion US debt ceiling, but vowed to meet again just weeks before the country is forced into an unprecedented default.
Ironically, the uncertainty is driving bond demand, although T-bills maturing in early June are out of support and yielding 5.6% — the highest in decades and well above the fed funds rate.
cpi clock
Weak April import data in China and Hong Kong kept stocks down for a second straight session, as investors worried a rebound was fading into an uneven recovery.
Hong Kong’s Hang Seng (.HSI) fell 0.4%. The Shanghai Composite (.SSEC) shed 0.8% and the yuan was lower. The apparent crackdown on due diligence firms is also troubling investors.
The forex market treads water while markets weigh policymakers’ rhetoric against traders’ belief that US interest rates and the dollar should decline.
Isabel Schnabel, a member of the European Central Bank’s board, said on Tuesday that expectations of a rate cut were misplaced, but it did not provide much of a boost to the euro against the dollar, as traders have been reluctant to sell too hard ahead of CPI data.
The common currency was held below $1.10 on Wednesday. The dollar was also steady at 135.14 yen and lifted slightly from recent lows on the aussie, kiwi and sterling.
“The dollar may get a temporary boost following the CPI,” said Joe Caparso, strategist at Commonwealth Bank of Australia.
“But the debt ceiling drama, and market participants’ focus on rate cuts, is unlikely to change much from a CPI report. It could take a strong result … to push the dollar up materially.”
SoftBank (9434.T), Panasonic (6752.T) and a handful of Japanese trading giants are due earnings after the market close in Tokyo on Wednesday.
Shares of US casino operator Wynn Resorts (WYNN.O) were steady in after-hours trading after reporting better-than-expected revenue. Shares of Airbnb (ABNB.O) fell nearly 12% after the bell as it forecast fewer bookings and lower prices.
Brent crude futures hovered at $77.01 a barrel. Gold is starting to consolidate above $2,000 an ounce, while bitcoin is stable at $27.732.
Editing by Simon Cameron-Moore
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