Asian shares mixed as investors digest US inflation surge

SHANGHAI : Asian shares were mixed on Thursday, while the dollar slipped as global investors assessed that strong U.S. inflation data was not worrying enough to change the Federal Reserve's already hawkish rates outlook.

While the U.S. consumer price index rose 7per cent in the 12 months through December, the biggest annual increase in nearly 40 years, investors were reassured by the fact that the jump was not a surprise, as the Fed looks set to raise rates as soon as March.

Markets in Asia, where inflation pressures have generally been more subdued in major economies, could offer attractive risk hedging opportunities, said Jim McCafferty, Nomura's joint head of APAC equity research.

"If you are a global investor and you've seen very significant stock market gains in the U.S. during 2021, if you are seeing inflation as a threat then a lot of investors may be tempted to reallocate funds away from developed equity markets in the West into the mix of developed and developing markets in East Asia," he said.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.1per cent higher, after recording its biggest daily gain in a month on Wednesday. Japan's Nikkei lost 0.87per cent after surging nearly 2per cent a day earlier.

Australian shares climbed 0.42per cent while Chinese blue-chips slipped 0.28per cent.

The uneven performance in Asia followed small gains on Wall Street overnight, with the S&P 500 rising 0.28per cent and the Nasdaq Composite up 0.23per cent. The Dow Jones Industrial Average rose 0.11per cent.

The People's Bank of China is set to unveil more easing steps to support slowing growth, though it is likely to avoid aggressive cuts to interest rates, policy insiders and economists.

The comments underscore the divergence in economic and policy outlooks between the world's two largest economies.

While longer-dated U.S. yields dipped after Wednesday's inflation data, Fed fund futures are pricing in nearly four rate hikes this year. Some analysts say that there could still be room for a more aggressive rate hike schedule.

"Our expectation for sustained cyclical price pressures means that we think the Fed will continue to tighten policy into 2023 by more than investors currently anticipate," Jonathan Petersen, markets economist at Capital Economics said in a note, adding that he expected the U.S. 10-year yield to reach 2.25per cent by year-end, and 2.75per cent by the end of 2023.

On Thursday, the U.S. 10-year yield edged up to 1.7499per cent after dipping on Wednesday to close at 1.725per cent. The policy-sensitive 2-year yield was up at 0.9229per cent from Wednesday's close of 0.907per cent.

Wednesday's drop in Treasury yields hit the dollar, which fell below key support levels on Thursday. The dollar index was last down 0.05per cent at 94.963, while the greenback crept up against the yen to 114.60.

The euro was little changed at US$1.1443.

Oil prices ticked lower, a day after hitting their highest in nearly two months on the back of a falling dollar, tighter supply, and as investors bet the spread of the Omicron novel coronavirus variant would have a relatively limited economic impact. [O/R]

Global benchmark Brent crude fell 0.07per cent to US$84.61 per barrel and U.S. West Texas Intermediate crude edged down to US$82.58 per barrel.

Spot gold held steady at US$1,824.54 an ounce.