SINGAPORE- Stocks were struggling to advance in Asia and the dollar was firm on Wednesday ahead of US consumer price data that could damage hopes for interest rate cuts later this year if inflation fails to show much of a decline.
MSCI’s broadest index of Asia-Pacific shares outside Japan had fallen on Tuesday and inched down a further 0.3 percent early on Wednesday. Japan’s Nikkei fell 0.4 percent.
Overnight the S&P 500 . fell 0.5 percent and S&P 500 futures were steady in the Asian morning. A firm US dollar pushed the euro back below $1.10 to $1.0971.
April US consumer price data is due at 1230 GMT and economists expect the headline CPI to hold steady at an annual 5 percent and core CPI to moderate very slightly to 5.5 percent, though anything stickier could confound bets interest rates will fall.
“That’s the thing that’d get taken out if CPI numbers come in on the higher side,” said ING economist Rob Carnell.
“It doesn’t look particularly sensible if inflation is falling at too slow a rate and that could feed through into higher longer-term treasury yields as well.”
Treasuries were broadly steady overnight, though debt-ceiling brinkmanship is warping the bills market as investors avoid bills maturing early in June.
Demand at a three-year auction was strong, with a bid-to-cover ratio of 2.93 – the highest since 2018 according to analysts at NatWest markets.
Benchmark 10-year yields held at 3.507 percent in Asia. Two-year yields were at 4.018 percent.
President Joe Biden and top lawmakers failed to break a deadlock over raising the $31.4 trillion US debt limit, but vowed to meet again with just weeks before the country may be forced into an unprecedented default.
The uncertainty is ironically driving demand for bonds, however T-Bills maturing early in June are out of favor and yielding 5.6 percent – the highest in decades and above the Fed funds rate.
In China and Hong Kong April’s weak import figures held down stocks for a second straight session, as investors fret the reopening rebound is fading into an uneven recovery.
Hong Kong’s Hang Seng fell 0.4 percent. The Shanghai Composite . dropped 0.8 percent and the yuan edged lower. An apparent crackdown on due diligence firms is also unnerving investors. – Reuters
