Asia shares turn wary, US inflation next hurdle

By Reuters

SYDNEY - Asian share markets were in a defensive crouch on Wednesday as the White House took a tough line on trade talks with China, while a looming reading on US inflation could scramble the odds for an early cut in interest rates there.

FILE PHOTO: A passerby walks past in front of a stock quotation board outside a brokerage in Tokyo, Japan, May 10, 2019. (REUTERS/Issei Kato/MANILA BULLETIN) A passerby walks past in front of a stock quotation board outside a brokerage in Tokyo, Japan, May 10, 2019. (REUTERS/Issei Kato/MANILA BULLETIN)

Data on Chinese inflation showed the annual pace picked up to a 15-month high of 2.7%, but mainly because of surging pork prices. Excluding food, inflation rose only 1.6% and suggested there was plenty of scope for more stimulus.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.6% after two days of gains.

Japan’s Nikkei dipped 0.3%, while Shanghai blue chips eased 0.7% following a 3% jump the day before. E-Mini futures for the S&P 500 fell 0.2% and EUROSTOXX futures lost 0.5%.

The Hong Kong market lost 1.7% as thousands of demonstrators stormed roads next to government offices to protest against a proposed extradition bill.

“The impact was short lived in the past,” noted Alex Wong, director at Ample Finance Group in Hong Kong.

“This time people will look at how the US reacts to this kind of news. The US attitude towards Hong Kong and China are also not the same.”

President Donald Trump said on Tuesday he was holding up a trade deal with China and had no interest in moving ahead unless Beijing agrees to four or five “major points” which he did not specify.

He also took aim at the Federal Reserve, saying interest rates were “way too high” and the central bank had “no clue”.

Fed policymakers will meet on June 18-19 against the backdrop of rising trade tensions, slowing US growth and a sharp step-down in hiring in May that have led markets to price in at least two rate cuts by the end of 2019.

Futures imply around an 80% chance of an easing as soon as July.

That might change depending on what US consumer price data show later in the session. Headline inflation is seen slowing a touch to 1.9%, with core steady at 2.1%.

All the uncertainty around trade saw Wall Street break a six-day winning streak to end flat on Tuesday. The Dow eased a tiny 0.05%, while the S&P 500 lost 0.03% and the Nasdaq 0.01%.

Talk down

Trump also put currency markets on edge by tweeting that the euro and other currencies were “devalued” against the dollar, putting the United States at a “big disadvantage”.

That was enough to give the euro a lift to $1.1336, just short of the recent three-month top of $1.1347. The dollar eased back a touch on the yen to 108.38 and stalled on a basket of currencies at 96.683.

“It is one thing talking down a USD that has an upward bias, it is another pushing on a currency market where the door is slowly opening toward USD weakness,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.

“The President’s tweets on the USD have the potential to have much more lasting impact in the coming election year,” he cautioned. “Global conditions are nicely set for what has colorfully been described as a ‘currency war’ or a currency race to ‘the bottom’.”

In commodity markets, all the chatter of rate cuts globally kept gold near 14-month highs at $1,335.51 per ounce.

Oil prices eased as concerns about a global economic slowdown offset wagers that OPEC and its allies will extend their supply curbs.

Hedge fund managers have been liquidating bullish oil positions at the fastest rate since late 2018 amid increasing economic fears.

Brent crude futures fell 98 cents to $61.31, while US crude lost 92 cents to $52.35 a barrel.