Shares stumble as investors’ nerves show ahead of US inflation data

SINGAPORE, May 10 (Reuters) – Shares struggled to advance in Asia and the dollar was firm on Wednesday ahead of U.S. consumer price data that could hurt hopes of a rate cut later this year if inflation does not show much of a slowdown.

MSCI̵[ads1]7;s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) had fallen on Tuesday and fell another 0.3% early Wednesday. Japan’s Nikkei (.N225) fell 0.4%.

Overnight, the S&P 500 (.SPX) fell 0.5% and S&P 500 futures were flat in the Asian morning. A solid US dollar pushed the euro back below $1.10 to $1.0971.

April US consumer price data should be at 1230 GMT, and economists expect headline CPI to hold steady at 5% and core CPI to moderate very slightly to 5.5%, though anything stickier could confound bets that rates will fall.

“That’s what will be taken out if CPI numbers come in on the higher side,” said ING economist Rob Carnell.

“It doesn’t look particularly sensible if inflation falls too slowly, and it could also lead to higher long-term government interest rates.”

Treasuries were largely steady overnight, although debt ceilings are distorting the bills market as investors avoid bills maturing in early June.

Demand for a three-year auction was strong, with a bid-to-cover ratio of 2.93 – the highest since 2018, according to analysts at NatWest Markets.

Benchmark 10-year yield held at 3.507% in Asia. The two-year yield was 4.018%.

President Joe Biden and top lawmakers failed to break a deadlock over raising the $31.4 trillion U.S. debt ceiling, but vowed to meet again with just weeks to go before the country could be forced into an unprecedented default.

Uncertainty is ironically driving demand for bonds, but Treasuries maturing in early June are out of favor, yielding 5.6% – the highest in decades and above the Fed funds rate.

CPI SE

In China and Hong Kong, April’s weak import numbers held stocks down for a second straight session, as investors worry that the reopening recovery is fading into an uneven recovery.

Hong Kong’s Hang Seng (.HSI) fell 0.4%. The Shanghai Composite (.SSEC) fell 0.8% and the yuan edged lower. An apparent crackdown on due diligence firms is also unnerving for investors.

Currency markets have been treading water as markets weigh policymakers’ rhetoric against traders’ conviction that US interest rates, and the dollar, should fall.

European Central Bank Governor Isabel Schnabel said on Tuesday that interest rate cut expectations were misplaced, but it did not give the euro much of a boost against the dollar as traders have been reluctant to sell too hard ahead of the CPI data.

The common currency was pegged below $1.10 on Wednesday. The dollar was also steady at 135.14 yen and has lifted slightly from recent lows in the Aussie, kiwi and pound.

– The dollar may get a temporary boost after the CPI, said strategist Joe Capurso at the Commonwealth Bank of Australia.

“But the debt ceiling drama and the market participants’ focus on interest rate cuts are unlikely to change much from one CPI report. It may require a strong result … to push the dollar up significantly.”

Earnings for Softbank ( 9434.T ), Panasonic ( 6752.T ) and a handful of Japan’s giant watch trading houses come after the market closes in Tokyo on Wednesday.

Shares in U.S. casino operator Wynn Resorts ( WYNN.O ) were flat in after-hours trading after it reported better-than-expected earnings. Airbnb ( ABNB.O ) shares fell about 12% after the bell as it forecast fewer bookings and lower prices.

Brent oil futures hovered at $77.01 a barrel. Gold is starting to settle above $2,000 an ounce, while bitcoin stabilized at $27,732.

Editing by Simon Cameron-Moore

Our standards: Thomson Reuters Trust Principles.