Asian shares slip, dollar rises ahead of key U.S. inflation data

February 13, 2023 (MLN): Asian markets experienced a downturn on Monday as investors awaited the release of U.S. inflation data that could impact global interest rates and affect the recent increase in bond yields, as Reuters reported.

This cautious mood was further heightened by news of the fourth object shot down by the U.S. Air Force near the Canadian border. The officials did not reveal if the object was similar to the Chinese balloon shot down earlier this month.

As a result, the MSCI Asia-Pacific index outside Japan declined by 0.7%, following a loss of 2.2% the previous week. In Japan, the Nikkei fell by 1.0% while South Korea's index dropped by 0.7%. Meanwhile, China's blue-chip index inched up by 0.6% due to positive data on bank lending.

In Europe, the Eurostoxx 50 futures decreased by 0.1% and the FTSE futures remained unchanged. The S&P 500 and Nasdaq futures also decreased by 0.4% and 0.5% respectively. The future direction of assets is largely dependent on the U.S. consumer prices and retail sales data this week. Analysts predict a 0.4% increase in headline and core consumer prices, with retail sales rebounding by 1.6%.

The forecasts could be exceeded as last week's re-analysis of seasonal factors led to upward revisions to December and November's Consumer Price Index (CPI) and changes in weightings for shelter costs and used car prices could push the CPI higher.

According to JPMorgan's head of economic analysis, Bruce Kasman, the core CPI is expected to rise by 0.5% and retail sales to jump by 2.2%. This reinforces the view that the labor market is tightening and a recession will eventually be needed to bring inflation back to the central bank's comfort zone.

The Federal Reserve's profile for future tightening has increased, with rates now projected to peak at 5.15% and cuts expected to come later and slower.

The shift in the market has led to higher yields on 10-year Treasuries, which hit five-week highs of 3.75%, and two-year yields that reached 4.51%. This stabilization the dollar, particularly against the euro, which fell to a five-week low of $1.0660, down from its February high of $1.0987.

Additionally, the dollar received a boost against the yen following reports that the Japanese government may appoint academic Kazuo Ueda as the next governor of the Bank of Japan.

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