Asian shares shaky as investors wary before US inflation data, yen lurks

Asian stocks stuttered in choppy early trade on Wednesday as markets braced for a key US inflation reading, while the yen lurked just shy of 160 per dollar level, keeping traders on alert for another round of intervention by Japanese authorities.

Risk sentiment was also capped as hawkish comments from Federal Reserve officials kept near-term US rate cut expectations in check in a boost to the dollar.

MSCI's broadest index of Asia-Pacific shares outside Japan was little changed at 566.55 in choppy trading, inching away from the two year high of 573.38 it touched last week. The index is still up 3.5 per cent in June, on course for fifth straight month of gains.

Japan's Nikkei and Taiwan stocks soared, led by chipmakers, tracking the rally in tech heavy Nasdaq on Tuesday, with Nvidia surging over 6 per cent, snapping out of a three-session tailspin that had erased about $430 billion from its market value.

China stocks, however, edged lower with blue-chip CSI300 Index and the Shanghai Composite Index both down 0.2 per cent and headed for decline of 4 per cent for the month.

Hong Kong's Hang Seng index was also off 0.16 per cent.

On the US monetary policy front, Fed officials urged patience on interest rate cuts, with governor Lisa Cook saying the central bank is on track for a rate cut if the economy's performance meets her expectations. But Cook declined to say when the Fed will be able to act.

US Federal Reserve Governor Michelle Bowman reiterated her view that holding the policy rate steady "for some time" will probably be enough to bring inflation under control.

The comments along with data showing a stable housing market kept expectations in check over when and by how much the Fed will cut rates. Markets are pricing in 47 basis points of easing this year, with a rate cut in September pegged at 66 per cent probability, CME FedWatch tool showed.

"The great disinflation trajectory remains intact, but the last mile journey has been bumpy and tricky to navigate," Selena Ling, head of research and strategy at OCBC said in a note.

Traders are eagerly awaiting Friday's release of the US personal consumption expenditures (PCE) price index - the Fed's preferred measure of inflation, with economists polled by Reuters expecting the annual growth to ease to 2.6 per cent in May.

"Barring new shocks to energy markets and/or supply chains, easing incoming inflation and a labour market rebalancing will provide the window for the data-dependent Fed to cut up to two times this year," said OCBC's Ling.

In the currency market, the dollar index, which measures the US unit against six peers, was steady at 105.64, while the euro was at $1.0715.

The Australian dollar rose after data showed consumer price inflation accelerated to a six-month high in May, leading markets to narrow the odds on another rate hike as early as in August. The Aussie was last up 0.39 per cent at $0.6674.

The yen was fetching 159.79 per dollar and has been trading in tight ranges as it stalks the crucial 160 level that some traders say might bring about another round of intervention.

The yen touched a 34-year low of 160.245 per dollar on April 29, prompting Tokyo to spend roughly 9.8 trillion in late April and early May to support the currency.

The latest slide in the yen has come on the back of the Bank of Japan's (BOJ) June policy meeting, where policymakers disappointed investors who were betting on an immediate reduction of the central bank's massive bond purchases.

The BOJ though is dropping signals that its quantitative tightening plan in July could be bigger than markets think, and may even be accompanied by an interest rate hike, as it steps up a steady retreat from its still-huge monetary stimulus.

In commodities, oil prices were little changed in Asian trade, with Brent crude oil futures flat at $85.02 a barrel, while US West Texas Intermediate crude futures were at $80.9 per barrel.

Gold prices eased to $2,318 per ounce but remains up 12 per cent this year having touched a record high of $2,449.89 last month. [GOL/]

 

(Editing by Shri Navaratnam)