Asia shares mostly higher, focus on US banking data

SYDNEY, May 8 (Reuters) – Asian shares crept higher on Monday as investors braced for a week in which U.S. inflation data will test bets the next move in interest rates will be lower, while worries about a possible credit crunch weighed on the dollar.

Friday’s robust US payrolls report has already dealt a blow to ease hopes, and any upside surprise on consumer prices will challenge bets on a rate cut as soon as September.

Forecasts are for a 0.4% increase in April for both headline and core CPI, with the annual pace of core inflation easing to just 5.5%.

Later Monday, the Federal Reserve’s survey of loan officers will draw an unusual amount of attention as markets try to gauge the effect of regional bank stress on lending.

“The survey should point to further broad-based tightening of banks’ lending standards,” said Bruce Kasman, head of economic research at JPMorgan.

“Continued stress in the banking system naturally adds to concerns that a disruptive financial market event is on the horizon,” he added. “Although our analysis suggests that the impact of a credit squeeze against an otherwise healthy backdrop tends to be limited.”

Caution heralded a slow start for markets and MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.7%, while Japan’s Nikkei (.N225) fell 0.6%.

Chinese blue chips (.CSI300) rose 1.2% ahead of trade and inflation data due later in the week.

EUROSTOXX 50 futures rose 0.2%, while FTSE futures were closed for a holiday.

S&P 500 futures and Nasdaq futures were both flat, after jumping on Friday in the wake of Apple’s ( AAPL.O ) upbeat results.

While the S&P 500 is up nearly 8% for the year so far, all of this is due to just five mega-stocks that have collectively risen 29% so far this year and are trading at a 49% premium to the rest of the index.

HIT THANKS

Bond markets are still reeling from the strong payrolls report with US two-year yields up 3.93% after briefly hitting as low as 3.657% last week.

Not helping has been the risk of a US government default with US Treasury Secretary Janet Yellen on Sunday warning of a possible crisis if Congress does not raise the debt ceiling.

Futures suggest a close to 90% chance that the Fed will keep interest rates steady at its next meeting in June, and a 75% chance of a cut in September.

The market is still pricing in at least one more rate hike from the European Central Bank, while the Bank of England is widely expected to raise interest rates by a quarter of a point on Thursday. , .

The diverging outlook for interest rates has underpinned the euro and the pound, with the latter hitting a one-year high against the US dollar last week. The euro held at $1.1034 on Monday, just below the recent peak of $1.1096.

“While it is too early to be too ‘bearish’ on the dollar until a clearer peak in US interest rates is seen, US banking sector travails that have no easy/cost-free solutions continue to create a mildly bearish medium-term story,” said Alan Ruskin, head of global currency strategy at Deutsche Bank.

“It certainly imposes more growth constraints and a greater stagflationary bias than for large competing economies.”

The dollar has outperformed the yen as the Bank of Japan remains the only central bank in the developed world not to have tightened policy. The dollar was at 134.82 yen, with the euro at 148.75 and not far from its recent 15-year peak of 151.55.

The prospect of a pause in US interest rate hikes has been a boon for non-yielding gold, which held at $2,021 an ounce after approaching record highs last week.

Oil prices have gone the other way as fears of a global economic slowdown overshadowed planned production cuts to see US crude fall more than 7% last week.

Brent was last up 14 cents at $75.44 a barrel, while US crude rose 16 cents to $71.50 a barrel.

Reporting by Wayne Cole Editing by Shri Navaratnam

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