Asian shares up from lows ahead of US inflation data

Asian shares edged higher yesterday from close to two-year lows hit in the previous session and the dollar held steady, ahead of keenly awaited US inflation data that will offer a guide to how aggressively the US Fed will raise rates.

MSCI'S broadest index of Asia-pacific shares outside Japan rose 0.45 per cent, trading marginally above its lowest level since July 2020 touched the day before. Japan's Nikkei gained 0.3 per cent.

Chinese blue chips led the gains, rising 1.5 per cent after producer prices in the world's second largest economy rose at the slowest pace in a year in April, leaving room for more stimulus to shore up an economy facing pressure from COVID-19 restrictions.

Strict curbs to combat the coronavirus have weighed on China's economy. As of Tuesday, 41 Chinese cities are currently implementing full or partial lockdowns or some kind of district-based control measures, estimates by Nomura analysts showed.

They estimated around 289.8 million people are currently affected by these lockdown measures in regions that account for around 33.8 trillion yuan (US$5.02 trillion) of China's total GDP, down moderately from last week’s 327.9 million people and 35.4 trillion yuan.

But the main scheduled event for the day is the US inflation data, due at 12.30 GMT, which will give an indication of whether the US Federal Reserve will raise rates even more aggressively to combat inflation.

The Fed last week raised its target for overnight bank-to-bank lending by a half a per centage point, and Chair Jerome Powell said two more such rate hikes are likely at the US central bank's coming policy meetings.

There has also been speculation in markets they the Fed will need to go in for a massive 75 basis point hike at one meeting.

This has sent US Treasury yields higher, and supported the dollar.

"A positive surprise (in CPI data) will encourage markets to increase pricing for a 75pt increase in the Funds rate later in the year and support the dollar, while a negative surprise will keep pricing for 50bp increases in June and July intact and leave the dollar steady," said CBA analysts in a note.

They also predict an annual increase of 8.1 per cent, 0.4 per centage point lower than the prior 8.5 per cent, which was the hottest reading since December 1981.

The dollar index , which measures the greenback against six main peers, was steady at 103.86, not far from the high of 104.49 reached at the start of the week for the first time since December 2002.

Wall Street was mixed overnight. The

Nasdaq rose 0.98 per cent and the S&P 500 gained 0.25 per cent but the Dow Jones Industrial Average fell 0.26 per cent.

US Treasuries were also quiet ahead of the data. The benchmark 10-year note yield was steady at 2.9869 per cent, having fallen overnight from a three-year high.

On the front end of the curve, the US twoyear yield, which often reflects the Fed rate outlook, was little changed at 2.68 per cent

Bitcoin was trading around $31,400 having staged a small recovery after falling below $30,000 on Tuesday for the first time since July 2021.

Oil bounced back from declines the previous day.

US crude rose 1 per cent to $100.03 a barrel, having fallen below $100 on Tuesday for the first time this month. Brent rose 1.1 per cent to $103.58. Spot gold fell 0.1 per cent to $1836.6 an ounce.