Asian shares mixed as Fed banker warns of rates overoptimism

Sydney — Asian share markets were mixed on Monday as a top US central banker warned investors against getting carried away over one inflation number, while Chinese stocks gained on signs of aid for the hard-hit property sector.

A modest miss on US inflation was enough to see two-year Treasury yields dive 33 basis points for the week and the dollar lose almost 4%, the fourth-biggest weekly decline since the era of free-floating exchange rates began more than 50 years ago.

However, the resulting easing in US financial conditions was not entirely welcomed by the Federal Reserve with governor Christopher Waller saying it would take a string of soft reports for the bank to take its foot off the brakes.

Waller added the markets were well ahead of themselves on just one inflation print, though he did concede the Fed could now start thinking about hiking at a slower pace.

Futures are wagering heavily on a half-point rate rise to 4.25%-4.5% in December and then a few quarter-point moves to a peak in the 4.75-5.0% range.

Two-year yields edged up to 4.41%, after diving as deep as 4.29% on Friday.

“The CPI downside surprise aligns with a broad range of indicators pointing to a downshift in global inflation that should encourage a moderation in the pace of monetary policy tightening at the Fed and elsewhere,” said Bruce Kasman, head of economic research at JPMorgan.

“This positive message needs be tempered by the recognition that downshift in inflation will be too little for central banks to declare mission-accomplished, and more tightening is likely on the way.”

Futures dipped

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.8%, after jumping 7.7% last week.

Japan’s Nikkei eased 0.6%, while South Korea went flat. S&P 500 futures dipped 0.3% and Nasdaq futures lost 0.4%.

Euro Stoxx 50 futures gained 0.4%, while FTSE futures tacked on 0.1%.

Dealers were also waiting to see if Chinese stocks could extend their big rally amid reports regulators have asked financial institutions to extend more support to stressed property developers. China’s real estate index jumped 5% in response. Blue chips rose 1.4% helped by a slew of changes to China’s Covid-19 curbs, even as the country reported more cases at the weekend.

“It’s hard to see how the case news is anything but negative from an economic standpoint, but it’s the symbolism of the movement, however small, in the zero Covid-19 strategy that markets are happily latching onto,” said Ray Attrill, head of FX strategy at NAB.

US President Joe Biden will meet Chinese leader Xi Jinping in person on Monday for the first time since taking office, with US concerns over Taiwan, Russia’s war in Ukraine and North Korea’s nuclear ambitions on top of his agenda.

The news on Covid-19 rules had stoked a short-covering bounce in the yuan last week, which added to broad pressure on the dollar as yields dived. The dollar regained a little ground early on Monday as its index added 0.4% to 106.870, but remained well short of last week’s 111.280 top.

The euro eased a touch to $1.0324, after climbing 3.9% last week, while the dollar firmed to ¥139.27 after last week’s 5.4% drubbing.

The dollar lost almost as much to the Swiss franc, steered partly by warnings from the Swiss National Bank that it would use rates and currency purchases to tame inflation.

Sterling eased back to $1.1790 before the UK chancellor’s autumn statement on Thursday in which he is expected to set out tax rises and spending cuts.

Crypto currencies remained under pressure as at least $1bn of customer funds were reported to have vanished from collapsed crypto exchange FTX.

Bitcoin was trading down 1.5% at $16,055, having shed almost 22% last week.

The dollar’s recent retreat provided a much-needed fillip to commodities, with gold holding at $1,763 an ounce after jumping more than $100 last week.

Oil futures extended their gains on hopes for a pick-up in Chinese demand with Brent up 63c at $96.62, while US crude rose 56c to $89.52 per barrel.

Reuters