© Reuters. FILE PHOTO: Passers-by walk past electric monitors displaying the exchange rate between the Japanese yen and the U.S. dollar outside a brokerage house in Tokyo, Japan January 18, 2023. REUTERS/Issei Kato
By Wayne Cole
SYDNEY (Reuters) – Asian stocks fell on Monday as investors focused on U.S. inflation and retail sales data that could upset the outlook for global interest rates, while tempering or by accelerating the recent surge in bond yields.
An air of geopolitical mystery was added by the news that the United States Air Force had shot down a flying object near the Canadian border, the fourth object shot down this month.
Officials declined to say whether it resembled the large white Chinese balloon that was shot down earlier this month.
In any case, it provided an additional excuse for caution and MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.1%, after losing 2.2% last week.
fell by 0.5% and South Korea by 0.3%. were down 0.2%, while Nasdaq futures fell 0.3%.
The near-term direction of assets may well be determined by US consumer price and retail sales data this week, with plenty of rest on the continued slowdown in inflation in January.
The median forecast calls for overall and core consumer prices to rise 0.4% for the month, with sales rebounding 1.6%.
Risks could be on the upside as new seasonal factor analysis released last week saw upward revisions to the CPI in December and November. This brought core inflation on a three-month annualized basis to 4.3% from 3.1%.
There have also been changes in the weightings of housing costs and used car prices, which could bias the CPI upwards.
Bruce Kasman, head of economic analysis at JPMorgan (NYSE:), expects core CPI to rise 0.5% and sales to jump 2.2%, underscoring the message of resilience from the market. January payroll report.
“Developed market labor markets have tightened in recent months relative to our easing expectations,” Kasman says.
“The latest news reinforces the belief that we are not on a soft landing path and that a recession will eventually be needed to bring inflation back into central bank comfort zones.”
Markets have already raised the profile sharply for future tightening from the Federal Reserve, with rates now peaking at around 5.15% and cuts coming later and slower.
There’s also a full list of Fed officials speaking this week to provide a quick reaction to the data.
Yields on 10-year Treasury bills are at five-week highs of 3.75%, after jumping 21 basis points last week, while two-year yields hit 4.51%.
The move helped stabilize the dollar, especially against the euro which slid 1.1% last week to settle at $1.0670, well off its early February high of $1.0987. .
The dollar also gained a head start against the yen on Friday when reports emerged that the Japanese government was likely to appoint academic Kazuo Ueda as governor of the Bank of Japan.
The surprise news sparked speculation of an early end to the BOJ’s super-easy policies, although Ueda himself later said it was appropriate for the current stance.
The dollar last stood at 131.50 yen, after rebounding from a low of 129.80 on Friday.
Rising yields and the dollar weighed on gold prices, which remained stuck at $1,862 an ounce from a peak of $1,959 in early February. [GOL/]
Oil prices fell slightly after surging on Friday when Russia announced it planned to cut daily output by 5% in March after the West imposed price caps on Russian oil and petroleum products. [O/R]
fell 36 cents to $86.03 a barrel, while it fell 35 cents to $79.37.