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[SYDNEY] Asian shares inched back from one-year peaks on Monday as a rally in Chinese stocks helped offset news of Japan's economic growth slowing to a halt last quarter.
China's blue-chip CSI300 Index rose 1.3 per cent to a seven-month high and Shanghai added 0.9 per cent amid talk more stimulus would be forthcoming from Beijing.
The need for further policy action in Japan was underlined by the subdued economic reading, leaving the Nikkei dithering either side of flat.
MSCI's broadest index of Asia-Pacific shares outside Japan recouped early losses to stand steady. It has climbed almost 14 per cent since late June when Britain's vote to leave the European Union unleashed a new wave of global policy stimulus, led by aggressive action from the Bank of England.
All this easing has pushed rich-world bond yields dramatically lower and driven investors to seek higher returns in longer-term debt and in emerging markets.
Yields on British 10-year gilts have more than halved to all-time lows of 53 basis points, having been up at 1.39 per cent just before the Brexit vote.
That has pulled down rates right across Europe, with Spanish yields, for instance, falling over 60 basis points to break under 1 per cent for the first time ever.
The plunge in returns on bonds has made equities look more attractive in comparison. The Dow, S&P 500 and Nasdaq all made record closing highs last week for the first time since 1999.
The pan-European Stoxx 600 index dipped a touch on Friday but that was from a seven-week high.
"After a period of strong gains, shares are due to take a breather," said Shane Oliver, head of investment strategy at AMP Capital. "But after the consolidation, we expect shares to trend higher over the next 12 months helped by okay valuations, very easy global monetary conditions and continuing moderate global economic growth."
The same fundamentals should also underpin bonds. "That said, the recent bond rally has taken yields to pathetic levels, leaving them at risk of a snapback," added Mr Oliver.
High on the US calendar this week are inflation figures for July and minutes of the last Federal Reserve meeting which might offer more clues on the chance of a rate hike by year end. There are also five separate Fed speakers on the docket this week.
US retail sales growth was unexpectedly flat in July as consumers cut back on buying clothes and other goods, while the producer price index fell 0.4 per cent in July, the biggest drop in nearly a year.
The European Central Bank releases minutes of its last meeting on Thursday, and should strike a dovish tone.
Investors have recently lengthened the odds on any Fed hike this year, with futures implying around a 46 per cent chance of a move in December.
That in turn has weakened the bullish case for the US dollar and dragged it down against the euro, yen and a range of emerging market currencies.
Early on Monday, the US dollar was flat at 101.30 yen and not far from important support around 100.80. The euro was steady at US$1.1157 having held in a US$1.1050 to US$1.1230 range for last couple of weeks.
One outlier has been sterling, which has slipped steadily since the BoE's easing to stand at US$1.2927 and ever closer to the post-Brexit trough at US$1.2797.
In commodity markets, oil prices edged higher after boasting gains of 6 per cent last week as Saudi Arabia's oil minister held out the chance of action to help stabilise the market.
Brent crude futures were up 31 US cents on Monday at US$47.28 a barrel, while US crude added 35 US cents to US$44.84.