Asian shares slip, oil hold gains ahead of US inflation test

SYDNEY (Reuters) – Asian shares fell after Wall Street wobbled overnight with markets bracing for key U.S. inflation data on Wednesday, while an oil price spike stoked anxiety about persistent price pressures, complicating the interest rate outlook.

The euro was supported by a hawkish shift in expectations for the European Central Bank on Thursday, with bets now favouring a hike, after a Reuters report that the ECB expects inflation will stay above 3% next year in its updated forecasts.

Europe is set to open lower, with EUROSTOXX 50 futures falling 0.5%. Both S&P 500 futures and Nasdaq futures were mostly unchanged.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.3% while Tokyo’s Nikkei eased 0.1%.

Chinese blue-chips dropped 0.7% on still-fragile sentiment about the outlook for the world’s second largest economy. Hong Kong’s Hang Seng index reversed earlier gains to be mostly flat.

At the forefront of markets’ minds is the crucial U.S. Consumer Price Index (CPI) report expected on Wednesday, which should shed further light on the inflation outlook and provide some clarity about whether the Federal Reserve is done tightening.

While core CPI is seen cooling to 4.3% year-on-year in August from 4.7%, rising energy costs are forecast to keep headline inflation elevated at 3.6%. And the latest spike in oil prices to ten-month highs is unlikely to escape the Fed’s attention.

“What’s happening with oil and headline inflation is still too soon for the Fed to be signalling the all clear as far as the risks of some incremental tightening before they’re done,” said Ray Attrill, a currency strategist at National Australia Bank (OTC:NABZY).

“When you have those sort of volatility in the food and energy components, the worry is that if it’s persistent then it does tend to bleed into core inflation measures over time.”

Oil prices extended gains on Wednesday. Brent crude futures settled 0.3 higher at $92.31 per barrel, nearing a ten-month peak that it hit a session ago, while U.S. West Texas Intermediate crude futures were up 0.3% at $89.13. [O/R]

On Wall Street, the S&P 500 fell 0.6% overnight, the Nasdaq declined 1% while Dow Jones was mostly flat.

Apple (NASDAQ:AAPL) dropped 1.8% after unveiling new iPhones while not increasing prices as it faces a global smartphone glut, and Oracle (NYSE:ORCL) shares tumbled more than 13% after the cloud-services provider forecast current-quarter revenue below targets.

The euro was supported at $1.0753, nearing one-week highs on the Reuters story, while markets moved to favour a rate hike from the ECB on Thursday with a 75% probability, compared with a split chance previously.

“The leak raises the possibility of a hawkish hike which would be much more supportive for the EUR,” said Steve Englander, global head of G10 FX research at Standard Chartered (OTC:SCBFF), referring to the Reuters report.

“Our baseline view is that the ECB will signal a hawkish hold and be deterred by soft growth from further hikes… We think it is a close call.”

The U.S. dollar recovered some of its recent losses against the yen, up 0.2% to 147.35 yen after comments from Japan’s top central banker on a possible early exit from its negative interest rate policy sent the Japanese currency soaring. [FRX/]


Treasury yields climbed on Wednesday, with the two-year note touching 5.0263%, compared with a U.S. close of 5.005%. Ten-year yields held at 4.2842%, up from the close of 4.264%.

Gold price was flat at $1,911.29 per ounce.

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