Ahead of U.S. inflation, stocks stumbled in jittery mood

  • MSCI Asia’s ex-Japan index fell 0.4%
  • Currency markets are stable; T-bills are an eye default risk
  • US CPI is due at 1230 GMT

SINGAPORE, May 10 (Reuters) – Stock markets in Asia faltered, with the dollar firming on Wednesday ahead of U.S. consumer price data that damaged hopes for an interest rate cut if inflation failed to show much decline.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell on Tuesday and fell another 0.4% on Wednesday. Japan’s Nikkei (.N225) fell 0.3%.

S&P 500 futures were flat and European futures rose 0.1%. A firmer US dollar pushed the euro down $1.10 to $1.0968.

April US consumer price data is due at 1230 GMT and economists expect headline CPI to come in at 5% year-on-year and core CPI at 5.5%, although sticker interest rates will drop.

“If the CPI numbers come in on the high side that’s what’s going to be taken out,” said ING economist Rob Cornell.

“It doesn’t seem particularly prudent if inflation is falling at such a slow rate that it could also feed into higher long-term Treasury yields.”

There is a 60% chance that the Federal Reserve will cut interest rates in September. CME FedWatch Tool.

Treasuries were broadly flat, with the US debt ceiling approaching, spurring demand for safer assets including bonds on the one hand, while also pulling investors out of T-bills maturing in early June.

President Joe Biden and top lawmakers have failed to break the deadlock on raising the $31.4 trillion U.S. debt ceiling, but have promised to meet again before June, when the Treasury begins to struggle to meet its obligations.

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The benchmark 10-year yield in Asia stands at 3.517%. The two-year yield was 4.049%.

CBI Watch

China’s weak import figures for April kept Chinese and Hong Kong stocks on hold for a second straight session, as investors re-opened to a fading recovery in a patchy recovery.

Hong Kong’s Hang Seng (.HSI) fell 0.5%. The Shanghai Composite (.SSEC) fell 1.3% and the yuan fell to a two-week trough.

The apparent crackdown on companies performing due diligence has shaken the sector and worried investors. CICC Capital, a unit of top Chinese investment bank China International Capital Corp ( 3908.HK ), has stopped using consultancy Capvision, Reuters reported.

Forex markets have been treading water as markets weigh policymakers’ rhetoric against U.S. interest rates and traders’ hopes for a weaker dollar.

JP Morgan’s G7 FX volatility hit a one-year low (.jpmvxyg7).

European Central Bank board member Isabelle Schnabel said on Tuesday that expectations of a rate cut were misplaced, but that it did not provide much of a boost to the euro as traders were reluctant to sell dollars in excess of the CPI data.

The common currency was pinned below $1.10 on Wednesday. The dollar was firm at 135.34 yen and slightly up from recent lows in the Aussie, Kiwi and sterling.

“The dollar may get a temporary boost after the CBI,” said Joe Capurzo, strategist at Commonwealth Bank of Australia.

“But the debt ceiling drama and market participants’ focus on rate cuts is unlikely to change much from a CPI report. It could make a strong decision … to push the dollar higher.”

Earnings from Softbank ( 9434.T ), Panasonic ( 6752.T ) and Japan’s bellwether trading giant are due after the market closes in Tokyo on Wednesday.

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Brent crude was at $76.90 a barrel. Gold is starting to settle above $2,000 an ounce, while Bitcoin is at $27,732.

Editing by Simon Cameron-Moore

Our Standards: Thomson Reuters Trust Principles.

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