Stocks stumble into a jittery mood ahead of US inflation

SINGAPORE (Reuters) – Stocks were struggling to advance in Asia and the dollar was strong on Wednesday ahead of U.S. consumer price data that could hurt hopes for a rate cut if inflation fails to show much moderation.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell on Tuesday and fell another 0.4% on Wednesday. Japan’s Nikkei (.N225) declined 0.3%.

S&P 500 futures were flat and European futures were up 0.1%. The steady US dollar pushed the euro below $1.10 to $1.0968.

US April consumer price data is due at 1230 GMT and economists expect core CPI to hold steady at 5% annually and core CPI to average very slightly to 5.5%, although anything firmer is expected. Bets may confuse the interest rates will drop.

“That’s the thing that would be left out if the CPI numbers are on the higher side,” said Rob Carnell, an economist at ING.

“It doesn’t particularly make sense if inflation is coming down at a very slow rate and that could cause long-term Treasury yields to go up as well.”

Interest rate futures imply a 60% chance that the Federal Reserve will cut interest rates in September, according to CME FedWatch a tool.

Treasuries were broadly flat, with brinkmanship over an approaching US debt ceiling spurring demand for safe-haven assets, including bonds, on the one hand, while also prompting investors to exit Treasury bills due in early June.

President Joe Biden and top lawmakers have failed to break the deadlock over raising the $31.4 trillion US debt limit, but they have vowed to meet again before June, when the Treasury expects it will begin to struggle to meet its commitments.

The benchmark 10-year yield was steady at 3.517% in Asia. The two-year yield was 4.049%.

CPI WATCH

China’s weak import figures for April sent Chinese and Hong Kong stocks lower for the second straight session, as investors fear reopening is fading into an uneven recovery.

Hong Kong’s Hang Seng Index (.HSI) fell 0.5%. The Shanghai Composite Index (.SSEC) fell 1.3% and the yuan fell to a two-week low.

A crackdown on corporate due diligence appears to be irritating the sector and upsetting investors. Reuters reports that CICC Capital, a unit of leading Chinese investment bank China International Capital Corp (3908.HK) has stopped using advisory firm Capvision.

Foreign exchange markets have been running into the water as markets weigh policymakers’ rhetoric against traders’ conviction that US interest rates, and the dollar, must come down.

JP Morgan’s G7 FX Volatility Index settled at a one-year low (.JPMVXYG7).

Expectations of a rate cut were misplaced, but that didn’t give the euro much of a boost, European Central Bank Governing Council member Isabel Schnabel said on Tuesday, as traders were reluctant to aggressively sell dollars ahead of CPI data.

The shared currency was pegged below $1.10 on Wednesday. The dollar settled at 135.34 yen and rose slightly from its recent lows in the Australian and New Zealand dollars and the pound sterling.

“The dollar may get a temporary boost after the CPI,” said Joe Capurso, strategist at the Commonwealth Bank of Australia.

“But the debt ceiling drama and market participants’ focus on interest rate cuts is unlikely to change much from a single CPI report. It would take a strong result…to lift the dollar materially.”

Profits from SoftBank (9,434 TB), Panasonic (6,752 TB) and a handful of Japan’s trading giants are due after the market closes in Tokyo on Wednesday.

Brent crude futures hovered at $76.90 a barrel. Gold started to settle above $2,000 an ounce, while bitcoin settled at $27,732.

Editing by Simon Cameron Moore

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