Asian stocks edge lower, dollar firm as US inflation data looms

TOKYO (Reuters) – A benchmark of Asian shares pulled back from a two-week high on Tuesday as traders squared their positions as they headed to a headline U.S. inflation report, although mainland Chinese and Japanese stocks bucked the trend.

The dollar rose against major currencies as US yields remained elevated amid growing confidence that the banking sector is not headed for a broader crisis, Reuters reported.

Even so, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3%, erasing part of Monday’s 0.9% rise.

The Hang Seng Index in Hong Kong fell 0.4%, while the Australian Index lost 0.2% and the Kospi Index in South Korea fell 0.4%.

Japan’s Nikkei jumped 0.8%, boosted by steelmakers’ rally after JFE Holdings forecast higher earnings.

Mainland China’s blue-chip stocks gradually gained strength after an indifferent start, up 0.5%.

Investors were mostly unimpressed by Chinese data which showed exports rose last month while imports fell.

US S&P 500 E-mini futures pointed slightly lower on reopening after the stock index finished little changed on Monday.

Investors are firmly focused on Wednesday’s US consumer inflation report after Federal Reserve Chairman Jerome Powell said last week that policy decisions will be “data-driven,” while signaling a possible pause in the rate hike cycle.

At the same time, Friday’s strong payroll report prompted investors to reconsider expectations about the timing and size of the Fed’s first rate cut.

Money markets currently expect rate cuts of a quarter of a point by the end of the year, with a third at risk.

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Economists expect the headline inflation figure to moderate slightly to 5.5% annually for April, which matches the February reading, which was the lowest since the end of 2021.

“The surprise is on the downside” of the inflation data, particularly the risk of a dip below 5%, said Tony Sycamore, market analyst at IG Markets.

“If we get 4 editions, I think you’re going to get quite a bit of buzz, at least initially,” he said, with US stocks likely to fall back to the top of recent ranges.

At the same time, Sycamore cautioned against becoming too optimistic about the US banking sector, after the market mood was improved by the Fed’s survey of lenders which indicated no imminent credit crunch.

US Treasury Secretary Janet Yellen said overnight that regulators stand ready to mobilize the same tools used in recent bank bailouts if needed.

“It looks like they’re trying to put out the fires right now, but whether they can fully put out what’s going on, I honestly don’t think that’s going to happen,” Sycamore said.

And the confrontation over the debt ceiling gives another reason for caution, as Yellen warned that failure to raise the debt limit would cause a big blow to the US economy and weaken the dollar as the world’s reserve currency.

The dollar index, which tracks the currency against six major peers, was little changed after rising earlier overnight near the bottom of its trading range since the middle of last month.

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The 10-year Treasury yield retreated from a one-week high in Tokyo to last hold around 3.5%.

The nerves leading up to the US CPI data were also driving the commodities markets.

Spot gold prices eased slightly around $20 an ounce.

Oil prices fell, paring strong gains from the previous two sessions. Brent crude fell 31 cents to $76.70 and US West Texas Intermediate crude fell 23 cents to $72.92.

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