Asian stocks drop to their lowest level in the month as the US CPI fails to spark enthusiasm

SYDNEY (Reuters) – Asian stocks hit a one-month low and posted weekly losses on Friday, while the dollar is heading for a month of gains after U.S. inflation stabilized without surprisingly on the low side.

Weak demand at the 30-year Treasury auction and an explosion in US budget deficits also weighed on bonds, and their higher yields sent the dollar higher – particularly against the yen which has been suspended by yield control in Japan.

The yen touched a six-week low of 144.89 per dollar in early trade, although volumes eased due to a public holiday in Japan. Equity markets were closed and Treasuries went without trading in the Asian session.

US stock futures were flat and European futures were down 0.5%. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.7% as stocks in Hong Kong and China fell. It fell 1.6% for the week.

US headline CPI was 0.2% last month, the same as the previous month, and the details were encouraging – with commodity inflation slowing and rents only stabilizing.

However, a few hours later, Mary Daly, President of the Federal Reserve Bank of San Francisco, told Yahoo Finance that while this was welcome, “there is still more work to be done” for policymakers.

“I think the market was hopeful with that inflation data that we’ve heard from Fed speakers saying it’s unlikely we’ll go much higher, and the next step is to cut,” said Andrew Lilly, chief rate strategist at investment bank Baringjoy. in Sydney.

The benchmark 10-year Treasury initially rose on inflation news, but yields were up seven basis points at 4.11% at the close of trading in New York. The two-year yield rose twice, to 4.82%.

The 30-year’s revenue jumped six basis points to 4.24% after a $23 billion auction fell 1 basis point above where the market was trading. Primary dealers were left with 12.5% ​​of the sale.

Australian government bonds came under pressure in Asia on Friday, although outgoing RBA chief Philip Lowe told lawmakers the worst was over due to inflation and politics had now entered a “calibration phase”.

“The US and Australia have pretty much done their job to curb inflation,” said Nozomu Ogawa, executive director of fixed income sales at Daiwa Capital Markets in Sydney.

“The market should pick up from current levels,” he said, with returns of more than 4% attractive to Japanese investors.

dollar gains

In foreign exchange markets, choppy trading in the wake of inflation data left the dollar on track for weekly gains.

The euro fell slightly during the week at $1.0988. The yen was looking at a weekly loss of 2% as traders considered the Bank of Japan’s diluted limit on 10-year yields to buy time for short-term interest rates to remain lower.

“If you’re going to cap rates, you’re exposing yourself to less currency,” said Sally Auld, chief investment officer at JB Were Wealth Manager in Sydney.

“There’s also a small part of the story about the US dollar. Short-term returns are high. The economy continues to do better than people think… One thing we can be certain of is that we won’t see rate cuts anytime soon.”

In stocks, Chinese property firms were taking a fresh hit on developer giant Country Garden (2007.HK), which slumped to a record low after predicting a net loss of $7.6 billion in the first half. The broader Hang Seng index fell 0.6 percent.

In commodity markets, European gas prices have been volatile on hopes that a labor dispute at Australian fields that supply 10% of the world’s LNG could disrupt production.

The Australian Labor Regulatory Authority on Thursday paved the way for workers to vote to strike at Chevron (CVX.N).

It appears that Brent crude futures will end the week flat at $86.27 a barrel. UK growth and US consumer confidence data are due later on Friday.

Reporting by Tom Westbrook. Editing by Muralikumar Anantharaman and Shri Navaratnam

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