© Reuters. FILE PHOTO: Pedestrians walk past electric monitors displaying the exchange rate between the Japanese yen and the US dollar in front of a brokerage house in Tokyo, Japan, January 18, 2023. REUTERS/Issei Kato
by Wayne Cole
SYDNEY (Reuters) – Asian stocks fell and the dollar rose on Monday as investors awaited U.S. inflation data that could shake the global interest rate outlook while accelerating or reversing the recent increase in bond yields.
An air of geopolitical mystery was added by the news that the US air force had shot down a flying object near the Canadian border, the fourth object shot down this month.
Officials declined to say if it resembled the large white Chinese balloon that was shot down earlier this month.
In any case, it provided an additional excuse for caution and the broader MSCI index of Asia-Pacific stocks outside of Japan lost 0.7%, after shedding 2.2% last week.
fell 1.2% and South Korea 1.0%. Chinese blue chip stocks rose 0.1% on strong bank lending data.
EUROSTOXX 50 futures fell 0.1%, as did futures. were down 0.4%, while Nasdaq futures fell 0.5%.
The near-term direction of assets could well be determined by US consumer price and retail sales data this week, with much depending on whether inflation continued to slow in January.
Median forecasts are for headline and core consumer prices to rise 0.4% over the month, with sales picking up 1.6%.
The risks could be to the upside as a new analysis of seasonal factors published last week saw upward revisions to the CPI in December and November. That lifted core inflation on a three-month annualized basis to 4.3%, from 3.1%.
There were also changes in the weights of housing costs and used car prices that could bias the CPI higher.
Bruce Kasman, director of economic analysis at JPMorgan (NYSE:), expects core CPI to rise 0.5% and sales to rise 2.2%, underscoring the resilience message of the excellent January payroll report .
“Developed market labor markets have tightened in recent months against our expectations of easing,” says Kasman.
“The latest news reinforces the conviction that we are not on a soft landing path and that a recession will eventually be needed to drive inflation into central bank comfort zones.”
Markets have already raised the profile of future Fed tightening considerably, with rates now expected to top around 5.15% with cuts coming later and more slowly.
There is also a full list of Fed officials who will be speaking this week to provide timely reaction to the data.
Yields on 10-year Treasuries are at a five-week high of 3.75%, after rising 21 basis points last week, while two-year yields hit 4.51%.
That move helped stabilize the dollar, especially against the euro, which fell 1.1% last week and extended a retreat Monday to a five-week low of $1.0656. That was a long way from its early February high of $1.0987.
The dollar also gained an edge over the yen on Friday as reports surfaced that Japan’s government was likely to name 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 for the current stance.
The dollar rose 0.3% to 131.76 yen, after rebounding from a low of 129.80 on Friday.
Rising yields and the dollar have weighed on gold prices, which have stalled at $1,860 an ounce from an early February high of $1,959. [GOL/]
Oil prices were met with fresh selling, having risen on Friday when Russia said it planned to cut its daily output by 5% in March after the West imposed price caps on Russian oil and oil products. [O/R]
it fell 47 cents to $85.92 a barrel, while it fell 52 cents to $79.20.