Asian shares rise, dollar slips as investors await US inflation data

July 12, 2023 (MLN): Asian shares rose, while the dollar slipped to a two-month low on Wednesday ahead of a crucial U.S. inflation report that will help gauge whether the Federal Reserve is at the end of its aggressive rate hiking policy, as Reuters reported.

Futures indicated that the risk-on rally was set to continue in Europe, with the Eurostoxx 50 futures up 0.44%, German DAX futures 0.36% higher and FTSE futures up 0.30%.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.77%, set for its third straight day of gains. The index is up 2% for the week and on course for its best weekly gain in a month.

The core inflation rate is expected to have dropped for a third month to 5% from 5.3%, though that is more than double the Fed's 2% target.

"I think there is a bit of nervousness ahead of the CPI," said Shane Oliver, head of investment strategy at AMP Capital. "There's optimism that it's going to show a further fall but there's awareness, too, that core inflation has been sticky."

Oliver said the markets have had a good rally through June, particularly in the U.S., and that has left it a bit vulnerable to a pause or consolidation.

Markets are pricing in a 92% chance of a 25-basis-point Fed hike later this month, CME FedWatch tool showed, but remain doubtful of further hikes after that.

Saxo Markets strategists said traders are likely to continue to keep the odds for September and November rate hikes low if the core rate decelerates as anticipated.

Fed officials have indicated they expect to hike interest rates by at least another 50 basis points as they tackle persistent price pressures.

Investor attention will also be on the policy decision from the Bank of Canada, with analysts expecting a second consecutive quarter-point interest rate hike.

In June, the central bank raised its overnight rate to a 22-year high of 4.75% after a five-month pause, saying monetary policy was not restrictive enough. It then said further moves would depend on economic data.

Betashares chief economist David Bassanese it was still far from clear that a recession won’t ultimately be needed to sustainably bring down inflation, citing tight labour markets and sticky rates of service sector inflation.

"The great lingering fear among central banks is that the longer it takes to bring down inflation, the greater the risk of it becoming entrenched," Bassanese said in a note.

In Asia, Australia's S&P/ASX 200 index (.AXJO) rose 0.42%, while Japan's Nikkei (.N225) fell 0.7%.

China shares (.SSEC) eased 0.30%, while Hong Kong's Hang Seng Index (.HSI) rose 1% in early trading. On Monday, China extended some policies to shore up the real estate sector until 2024-end, stoking expectations of more stimulus.

Second-quarter earnings start this week, with results due from some of Wall Street's biggest institutions, including JPMorgan (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N).

Wall Street banks are expected to report higher profits for the second quarter as rising interest payments offset a downturn in dealmaking.

In the currency market, the dollar index, which measures the U.S. currency against six peers, fell 0.167% at 101.43, having slid as low as 101.34, its lowest in two months.

The Japanese yen continued its ascent and has risen nearly 4% from a seven-month low of 145.07 it touched last month, a level that had put traders on alert for possible intervention from Japanese authorities.

It last fetched 139.52 against the dollar, having touched its highest levels in a month earlier in the session. /FRX

The New Zealand dollar was up 0.26% in choppy trading after the country's central bank kept interest rates unchanged at 5.50%.

U.S. crude rose 0.01% to $74.84 per barrel and Brent was at $79.40, flat on the day.

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