Sydney, Feb. 13 (BNA): Asian stocks fell and the dollar rose Monday as investors piled on US inflation data that could shake interest rate prospects globally, while accelerating or reversing the recent rise in bond yields.
An air of geopolitical mystery was added by the news that the US Air Force had shot down an airborne object near the Canadian border, the fourth object to be shot down this month.
Officials declined to say if it resembled the large white Chinese balloon that was dropped earlier this month, according to Reuters.
In any case, it provided an additional excuse for caution and MSCI’s broader index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.7%, after losing 2.2% last week.
Japan’s Nikkei (.N225) fell 1.0%, and South Korea’s (.KS11) fell 0.7%. Chinese blue chips (.CSI300) rose 0.6%, supported by the strong data on bank lending.
EUROSTOXX 50 futures fell 0.1%, while FTSE futures remained flat. S&P 500 futures were down 0.4%, while Nasdaq futures were down 0.5%.
The asset’s near-term direction can be determined by US data on consumer prices and retail sales this week, with plenty of relief on whether inflation continued to slow in January.
The median forecast is for core and core consumer prices to rise 0.4% for the month, with sales rebounding by 1.6%.
The risks could be to the upside given last week’s re-analysis of seasonal factors which saw upward revisions to the CPI in December and November. This lifted the three-month annualized core inflation rate to 4.3% from 3.1%.
There have also been changes in the weightings of shelter costs and used car prices that could push up the CPI.
Bruce Kasman, head of economic analysis at JPMorgan, expects core CPI to rise 0.5% and sales to jump 2.2%, underscoring the resilience message from January’s ample jobs report.
“Evolving market labor markets have tightened in recent months against our expectations of easing,” Kassman says.
“The latest news reinforces the conviction that we are not on a soft landing path and that a recession will eventually be necessary to return inflation to the central bank’s comfort zones.”
Markets have already sharply raised the profile of future tightening by the Fed, with prices now rising to a peak around 5.15% and cuts coming later and slower.
There is also a full slate of Fed officials speaking this week to provide a timely reaction to the data.
The 10-year Treasury yield hit a five-week high of 3.75%, after jumping 21 basis points last week, while the two-year yield reached 4.51%.
This shift helped stabilize the dollar, especially against the euro, which fell 1.1% last week and extended Monday’s decline to a five-week low of $1.0660. That was far from its early February high of $1.0987.
The dollar also rose against the yen amid reports that the Japanese government may appoint academic Kazuo Ueda as the new governor of the Bank of Japan.
The surprising news fueled speculation about an early end to the BoJ’s ultra-easy policies, though Ueda himself later said it was appropriate to maintain the current position. Read more
The dollar was last up 0.6% at 132.15 yen, after rebounding from a low of 129.80 on Friday.
Rising yields and the dollar weighed on gold prices, which were stuck at $1,859 an ounce from February’s high of $1,959.
Oil prices entered a new sell-off, after jumping on Friday when Russia said it plans to cut its daily production by 5% in March after the West imposed ceilings on the prices of Russian oil and petroleum products.
Brent crude fell 77 cents to $85.62 a barrel, while US crude fell 79 cents to $78.93.
Rial