Asia shares rise marginally with focus on US inflation test, Fed meet

Asian stocks reversed early losses to rise marginally on Tuesday following Wall Street's overnight rally, though concerns about a still-struggling Chinese economy kept sentiment in check.

MSCI's broadest index of Asia-Pacific shares outside Japan was last up 0.2 per cent, after falling 1.11 per cent the previous session to hit a one-month low.

Japan's Nikkei last traded 0.4 per cent higher, helped by gains in financial and consumer names.

Wall Street staged an impressive rebound overnight, after all three major US stock indexes surged more than 1 per cent, recovering from last week's selloff.

"Risk-off sentiment stabilized overnight and US equities rebounded on dips buying after Friday's sell-off," said economists at ING in a note.

 

"As the non-farm payrolls numbers failed to convince for a 50bp cut, markets are now looking to the US inflation data to understand the pace of the Fed's rate cuts."

A reading on US inflation is due on Wednesday, where expectations are for the headline number to have further slowed to an annual 2.6 per cent in August.

"If the inflation number is any different, or significantly different from expectations, then the number of rate cuts (priced in) will be changed," said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners.

"At the moment, I think the market is reasonably aggressive in pricing quite a lot this side of the year, and so that probably opens up for a bit more... volatility that we have seen in the last couple of weeks."

The Federal Reserve is all but certain to ease rates when it meets next week, with markets pricing in a 29 per cent chance of an outsized 50-basis-point move. About 110bps worth of cuts are priced in for the rest of the year.

US futures were mixed on Tuesday, with S&P 500 futures last up 0.02 per cent, but Nasdaq futures slipped 0.07 per cent.

EUROSTOXX 50 futures tacked on 0.23 per cent while FTSE futures lost 0.16 per cent.

In currencies, the US dollar was on the front foot, rising 0.22 per cent against the yen to 143.47.

The euro was a touch lower at $1.1032, while sterling eased 0.06 per cent to $1.30655.

China woes

In Asia, concerns over China's growth outlook also cast a cloud over markets, after data on Monday showed the country's consumer inflation accelerated in August to the fastest pace in half a year but domestic demand remained fragile, and producer price deflation worsened.

That had sent Chinese stocks sliding to seven-month lows in the previous session while the yuan came under pressure on renewed calls for further stimulus measures from Beijing to prop up its economy.

In the offshore market, the yuan was last 0.04 per cent lower at 7.1234 per dollar.

"The stimulus, it clearly has to be more. But unfortunately, it's been done in very, very small parcels and targeted, and it just seems the economy is just not turning around very quickly," said Tribeca's Liu.

Trade data is due later on Tuesday, which could offer more clues on the pace of recovery in the world's second-largest economy.

Hong Kong's Hang Seng Index was last 0.22 per cent higher, while the Hang Seng Mainland Properties Index fell 0.2 per cent, extending its 3.5 per cent fall from the previous session. 

Adding to headwinds for the Chinese economy were escalating trade tensions, after the US House of Representatives on Monday passed a bill that aims to restrict business with China's WuXi AppTec, BGI and several other biotech companies on national security grounds.

In commodities, oil prices steadied, with Brent crude futures last up 0.42 per cent to $72.14 a barrel, while US crude firmed 0.36 per cent to $68.96 per barrel. [O/R]

Spot gold eased 0.03 per cent to $2,504.34 an ounce.