By Wayne Cole
SYDNEY (Reuters) – Asian share markets turned mixed on Monday as a surprisingly low reading on Chinese inflation highlighted the troubles in its economy, ahead of data on U.S. inflation and corporate earnings later in the week.
Chinese consumer price figures showed a fall in June to be essentially unchanged from a year before, while producer prices slid deeper into negative territory.
The miss implies there is plenty of scope to ease monetary policy further, but also underlines the challenge Beijing faces in reflating its economy and avoiding a deflationary spiral.
The yuan lost early gains on the news, though Chinese blue chips were still up 0.5% on hopes for a loosening in regulations for the tech sector. Shares in Hong Kong’s Alibaba Group also joined the rally.
The gains in China helped MSCI’s broadest index of Asia-Pacific shares outside Japan firm 0.3%. Japan’s Nikkei eased 0.1% in the wake of a higher yen, while South Korea added 0.2%.
EUROSTOXX 50 futures dipped 0.1% while FTSE futures held steady. S&P 500 futures and Nasdaq futures both dipped 0.2%, adding to last week’s losses.
Earnings season starts later this week with JPMorgan Chase, Citigroup, Wells Fargo, State Street and PepsiCo among the names reporting.
“Consensus expects a 9% year/year decline in S&P 500 EPS driven by flat sales growth and margin compression,” noted analysts at Goldman Sachs.
“We expect companies will be able to meet the low bar set by consensus,” they added. “Negative EPS revisions for 2023 and 2024 appear to have bottomed and revision sentiment has improved.”
This week also has major data on U.S. consumer prices which is forecast to show headline inflation slowed to its lowest level since early 2021 at 3.1%, down from 9.1% a year earlier.
Markets still think the Federal Reserve is likely to hike rates later this month, but a weak CPI might lessen the risk of yet a further move in September.
Currently futures imply around a 90% probability of a rise to 5.25%-5.5% this month, and a 24% chance of a move in September.
Fed officials have been mostly hawkish in their communications, while markets have also priced in higher rates in Europe and the UK. Canada’s central bank meets this week and markets imply a 67% chance of another hike.
The risk of higher global rates for longer has caused havoc in bond markets, where U.S. 10-year yields jumped 23 basis points last week, German yields 24 basis points and UK yields 26 basis points.
On Monday, U.S. two-year yields stood at 4.95%, having hit a 16-year high of 5.12% last week.
The jump in developed-world yields caused ripples in currency markets, particularly in carry trades where investors borrow yen at super-low rates to invest in high-yielding emerging market currencies.
The net result was a rush to close yen short positions which saw the Japanese currency rally across the board last week, though it was struggling to sustain the rally on Monday.
The dollar edged back up to 142.46 yen, after sliding 1.3% on Friday, while the euro held at 156.18 yen. The single currency was also firm on the dollar at $1.0956.
One of the most popular carry trades has been short yen and long Mexican peso, and the shakeout saw the peso dive 1.8% on the yen on Friday.
In commodity markets, gold was idling at $1,922 an ounce after making a slight gain last week. [GOL/]
Oil prices eased slightly, having touched nine-week highs last week as top exporters Saudi Arabia and Russia announced fresh output cuts. [O/R]
Brent fell 49 cents to $77.98 a barrel, while U.S. crude lost 51 cents to $73.35.
(Reporting by Wayne Cole; Editing by Stephen Coates)
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