Stocks, US futures muted as traders await US CPI: Markets wrap

Most Asian stocks traded in tight ranges as investors weigh the potential for US inflation data due Wednesday to spur volatility across global markets.

A gauge of Asia Pacific equities and US futures were both little changed, a sign investors are holding back on taking new positions before the release of a data point seen as crucial for the next Federal Reserve policy decision. Treasury two-year yields climbed further above 4%, while the dollar was broadly lower.

US headline inflation is expected to slow, with the core reading forecast to ease both on a monthly and yearly basis. Expect the S&P 500 index to drop at least 2% should the year-over-year inflation rate come in above the previous reading of 6%, Goldman Sachs Group Inc. partner John Flood wrote in a note.

Few investors have conviction on what to expect from the actual inflation report, according to Tom Lee, head of research at Fundstrat. “In other words, most are ‘flat’ going into a report with an uncertain outcome,” he wrote in a note.

As investors awaited the data, Fed officials offered differing comments on Tuesday about further policy tightening. Chicago Fed President Austan Goolsbee argued the central bank should exercise “prudence and patience,” while New York Fed President John Williams said officials have more work to do to tackle inflation.

Swap contracts are pricing in about three-in-four odds of another quarter-point Fed hike next month. Traders predict US rates will peak around 5%, with policymakers then cutting by at least 50 basis points by year-end.

Some investors see the situation differently.

“The inflation picture for us in the US is still very, very mixed,” said Dwyfor Evans, head of Asia-Pacific macro strategy at State Street Global Markets. “It’s certainly not consistent with a rapid adjustment to the downside in interest rates. We don’t buy that view at all,” he said on Bloomberg Television.

The dollar weakened against most of its Group-of-10 peers, while the euro advanced for a second day. The yen was the only major currency to fall versus the greenback, extending its decline into a fifth day. China’s 10-year bond yields fell to the lowest since November on expectations of more monetary easing.

“The risk to the dollar from the inflation data is tilted toward the downside,” said Fukuhiro Ezawa, head of financial markets Japan at Standard Chartered Bank in Tokyo.

Japanese stocks led gains in Asia, with sentiment boosted by Warren Buffett saying he’s mulling buying more equities in the country. Futures for European equities were muted.

Elsewhere, Bitcoin dropped back below $30,000 after rising above that level on Tuesday for the first time in 10 months. Oil steadied as traders tracked supply constraints and gold edged higher.

Key events this week:

• Canada rate decision, Wednesday
• US FOMC minutes, CPI, Wednesday
• Richmond Fed’s Thomas Barkin speaks, Wednesday
• China trade, Thursday
• US PPI, initial jobless claim, Thursday
• US retail sales, business inventories, industrial production, University of Michigan consumer sentiment, Friday
• Major US banks JPMorgan Chase, Wells Fargo and Citigroup report earnings, Friday

Stocks

• S&P 500 futures were little changed as of 6:40 a.m. London time. The S&P 500 was little changed
• Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.7%
• Euro Stoxx 50 futures fell 0.1%
• Japan’s Topix index rose 0.7%
• Hong Kong’s Hang Seng Index fell 0.7%
• China’s Shanghai Composite Index rose 0.3%
• Australia’s S&P/ASX 200 Index rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.2% to $1.0932
• The Japanese yen was little changed at 133.73 per dollar
• The offshore yuan was little changed at 6.8923 per dollar
• The Australian dollar rose 0.3% to $0.6671
• The British pound rose 0.1% to $1.2439

Cryptocurrencies

• Bitcoin fell 0.7% to $29,979.27
• Ether fell 1.4% to $1,869.05

Bonds

• The yield on 10-year Treasuries was little changed at 3.43%
• Japan’s 10-year yield advanced 1.5 basis points to 0.465%
• Australia’s 10-year yield advanced three basis points to 3.25%

Commodities

• West Texas Intermediate crude rose 0.1% to $81.64 a barrel
• Spot gold rose 0.8% to $2 020.08 an ounce