Asia: Stocks wobble, dollar firm as markets wary before key US inflation data

[HONG KONG] Asian shares were down while the US dollar held strong on Tuesday (Apr 12), as Treasury yields spiked to a 3-year high ahead of US inflation data which could foreshadow even more aggressive interest rate hikes from the Federal Reserve.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3 per cent, after US stocks ended the previous session with mild losses.

Australian shares were down 0.65 per cent, while Japan's Nikkei stock index slid 1.5 per cent.

Higher US bond yields were supporting the dollar, with the US currency's index measure against six peers moving back over 100 to test last week's near-2-year high.

The Japanese currency bore the brunt of the losses against the greenback, which rose to 125.77 yen overnight, its highest since June 2015.

The yen has been under the gun over recent months as the Bank of Japan has committed to ultra easy policy even as many other major central banks, led by the Fed, have embarked on tightening monetary conditions.

The euro was buffeted by politics, unable to hold onto gains from its mini-relief rally on Monday after French leader Emmanuel Macron beat far-right challenger Marine Le Pen in the first round of presidential voting. It was last steady at US$1.087.

"US stocks fell on Monday as investors grew increasingly concerned a 3-year high in the benchmark US 10-year Treasury yield would start to slow the economy, and looked ahead to the upcoming earnings season for signs of what impact inflation is having on corporate profits," Ord Minnett research analysts wrote to clients on Tuesday.

China's markets gained ground as signs emerged that some of the strict restrictions were starting to ease across the country's financial capital.

World markets have been hit hard in the past few months on worries the Ukraine war, Fed's tightening and China's tough new Covid-19 restrictions could set back global growth.

Hong Kong's Hang Seng Index gained 0.6 per cent in early trade on Tuesday, while China's bluechip CSI300 Index was up 0.4 per cent.

Tech stocks weighed on Wall Street during Monday's session as the Dow Jones Industrial Average fell 1.2 per cent, the S&P 500 lost 1.7 per cent and the Nasdaq Composite dropped 2.2 per cent. All 11 S&P 500 sectors fell.

Economists polled by Reuters forecast the US consumer price index (CPI) on Tuesday would post an 8.4 per cent year-over-year increase in March.

NatWest Markets economists have forecast a 1.1 per cent month-on-month jump in the headline inflation figure which would be the largest monthly gain since June 2008.

"We're quite hawkish in terms of US rate hikes and we think it's not just the amount of tightening but the pace which is going to impact investors," Elizabeth Tian, Citigroup's equity derivatives director in Sydney told Reuters.

"Equities markets have been very resilient and quite relaxed compared to the fixed income markets but we're expecting at the Fed's May meeting there will be some kind of announcement in term of quantitative easing tapering and that is when we could see the volatility emerging in equities.

"The question is going to be how do markets react to the velocity of rate hikes we could see."

Early in the Asian session, the yield on benchmark 10-year Treasury notes rose to 2.8107 per cent compared with its US close of 2.782 per cent on Monday.

The 2-year yield, which rises with traders'expectations of higher Fed fund rates, touched 2.5242 per cent compared with a US close of 2.508 per cent.

US crude ticked up 0.85 per cent to US$95.09 a barrel. Brent crude rose to US$99.18 per barrel.

Gold was slightly lower. Spot gold was traded at US$1951.45 per ounce. REUTERS