Asia: Markets struggle for traction ahead of US inflation data

[HONG KONG] Investors trod cautiously in early Asian trade on Tuesday as they awaited US inflation data that could play a key role in determining when the Federal Reserve will start winding down its market-supporting monetary policy.

The first gain for Wall Street's S&P 500 and Dow after a five-day losing streak was not enough to spur a broad advance in Asia, though Tokyo was on course to clock its highest finish in more than 30 years on hopes for fresh stimulus.

Experts are also keeping an eye on China after authorities tightened their grip on the tech sector as part of a wide-ranging regulatory crackdown against private enterprises.

But the main event this week is the release later Tuesday of US consumer price data, which comes days after figures showed the cost firms pay at the factory gate had risen last month at a record pace owing to a jump in demand as well as supply and labour shortages.

That report put pressure on the Fed to begin tapering its ultra-loose monetary policy as soon as November.

Expectations are for the consumer price reading to come in above five percent, with analysts warning that a reading well above that could force the central bank's hand in order to prevent inflation from spiralling out of control.

Oanda's Edward Moya said uncertainty over the reading would keep traders on the sidelines for now.

"Investors don't want to have massive positions before the inflation data as the risks are to the upside as Covid inflation continues to hamper supply chains," he wrote in a commentary.

"If inflation comes in hotter-than-expected, taper expectations could shift from December to November."

Hong Kong, Shanghai, Sydney, Wellington and Taipei all fell but Tokyo, Singapore, Seoul, Manila and Jakarta rose.

Confidence has also been knocked by fears about another coronavirus flare-up in China, with dozens of positive cases in Fujian province forcing authorities to carry out mass tests and shut down public transport in one county.

The news has led to talk that leaders could reimpose tough lockdown measures to prevent the spread of the disease, a move that dealt a blow to China's economy when another outbreak occurred earlier this year.

"Another round of lockdown restrictions due to China's elimination strategy threatens to further weaken momentum after surprising softness" in recent services and manufacturing data, said National Australia Bank's Tapas Strickland.

In Washington, House Democrats unveiled plans for sweeping tax reform Monday, including reversing Trump-era cuts and raising rates on the wealthy and corporations as they look to raise nearly US$3 trillion to help subsidise President Joe Biden's multi-trillion-dollar expansion of the social safety net and other public investments.

AFP