Asian shares drop, dollar steadies ahead of US inflation data

Asian stocks retreated as traders awaited key US inflation data, which could provide insights into whether the Federal Reserve will cut or hold interest rates next week.

The dollar steadied after a three-day gain, News.Az reports, citing Bloomberg.

Stocks in Hong Kong and mainland China fell as an annual economic meeting begins in Beijing on Wednesday. Those in Taiwan and Australia also dropped. South Korean equities rose for a second session, continuing a recovery after last week’s short-lived martial law event that thrust the country into political turmoil.

The US CPI, expected later Wednesday, will offer Fed officials another look at inflation ahead of their next meeting. Swap trading projects about an 85% chance of a quarter-point rate reduction this month. Meanwhile, China’s two-day Central Economic Work Conference is expected to map out policies for next year, with traders emboldened by stimulus signals from top leaders.

China may raise its budget deficit to the highest in three decades and make the deepest interest-rate cuts since 2015, according to economists. At least seven Chinese brokerages forecast that next year’s fiscal deficit target could reach 4% of gross domestic product, the widest since a major tax reform in 1994. Beijing has historically kept its budget deficit ratio at or below 3%.

Chinese and Hong Kong shares were positive through much of the Asian morning, then reversed gains.

With little follow-through from China’s politburo announcements, “it may be a case of once bitten, twice shy for investors, who are becoming more skeptical and less willing to buy into stimulus, given the lack of follow through with past policy promises,” said Kyle Rodda, a senior market analyst at Capital.com.

Treasury 10-year yields rose slightly.

In Japan, the yen strengthened slightly after inflation in corporate goods prices accelerated to the fastest pace in 16 months, an outcome that points to growing inflationary pressure in the economy and supports the central bank’s further normalization of policy.

Yet, the local currency remained weak as traders dialed back their bets on a December rate hike. Overnight indexed swaps priced in about a 20% chance of a December rate increase, tumbling from 60% at the beginning of last week.

Meanwhile, the bid by Nippon Steel Corp. to buy United States Steel Corp. looks to be entering its endgame, with President Joe Biden to formally block the $14.1 billion sale on national security grounds once the deal is referred back to him later this month, people familiar with the matter said.

Chinese President Xi Jinping opened a probe into Nvidia Corp. and banned the export of several rare materials with military applications, getting a head start on a looming trade war with the US. Beijing has also limited sales to the US and Europe of key components used to build drones.

Oil gained ahead of key US inflation data and a monthly report from OPEC that will provide a snapshot on the market.

News.Az