Asian shares hold ground awaiting US CPI data

December 11, 2024 (MLN): Asian stock markets and the dollar took a breather on Wednesday ahead of an anticipated rate cut in Canada and a U.S. inflation reading expected to leave the Fed on course to cut rates again.

Investors were a touch cautious because, with an 85% chance of a U.S. rate cut next week priced in and with Wall Street indexes around record highs, there is room for disappointment, according to Reuters.

The S&P 500 had dipped 0.3% overnight though it was just 65 points, or a little short of 1% shy of its all-time high.

U.S. futures were 0.1% higher in the Asia morning. MSCI's broadest index of Asia-Pacific shares outside Japan was flat and Japan's Nikkei fell 0.4%.

U.S. Steel shares had dropped nearly 10% overnight on a Bloomberg News report suggesting Nippon Steel's $15 billion takeover bid would be blocked.

Hong Kong and China shares were steady, having handed back gains as traders dialled down excitement about a readout that showed the Politburo had shifted its monetary policy stance and sought to boost consumption.

The median forecast of economists polled by Reuters is for headline and core U.S. consumer prices increasing 0.3% month on month, for November.

No forecasts were above 0.3%, which analysts say leaves markets vulnerable to a surprise, Reuters further added.

"The 0.4% case is a barnburner," said trader and president at analytics firm Spectra Markets, Brent Donnelly.

"The trade is to buy USD and sell stocks on 0.4% and do nothing otherwise", he noted.

The dollar is likely to rise if markets pare back the speed and depth of expected U.S. rate cuts.

Analysts at the Commonwealth Bank of Australia think the dollar index will probably drift lower towards 105.1 if inflation meets expectations, but could shoot up towards 108.1 if core inflation comes in at 0.4% or higher. The index was last at 106.36.

U.S. yields had ticked marginally higher and benchmark 10-year yields were steady in Asia at 4.2302%.

The Canadian dollar touched a 4-1/2 year low on Tuesday and, at C$1.4168 per dollar, was close by on Wednesday as traders saw an 89% chance of a super-sized 50 basis point rate cut later on Wednesday.

Canada has already reduced rates by 125 basis points this cycle but news last week that Canada's jobless rate spiked to an eight-year high of 6.8% in November has driven bets on an extra 50 bps of cuts, which would bring the overnight rate to 3.25%.

Broader foreign exchange markets were steady, with the euro at $1.0533 and the yen at 151.70 per dollar.

Markets have fully priced a European Central Bank rate cut for Thursday and a 61% chance of a 50 bp cut from the Swiss National Bank, which would help cool a rally in the franc.

On Tuesday, Australia's central bank left rates on hold, as expected, but dropped a veiled reference to the possibility of a future rate hike and sent the Aussie dollar down sharply.

The Aussie was nursing a 1% drop from the previous session at $0.6381 on Wednesday, while the kiwi had also suffered a kicking and bought $0.5798.

China's resumption of gold buying for reserves seems to have helped spot prices break a recent range and gold was above its 200-day moving average at $2,700 an ounce on Wednesday.

In other commodity markets, a brief fillip from China's policy shift seemed to have passed and oil prices were broadly steady with Brent crude futures at $72.48 a barrel.

Arabica coffee prices hit a record just above $3.48 a pound on Tuesday as dealers worry a drought is going to cut output for top producer Brazil.

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