Investors focus on US inflation, possible Fed tapering

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Investors focus on US inflation, possible Fed tapering

SYDNEY - Asian shares dipped higher on Thursday, but held their recently quoted level as investors focused on US inflation data and the potential for an upside surprise that could lead the Fed to start tapering its massive stimulus program.

The broadest index of Asia-Pacific shares outside Japan was marginally higher in 700.6 points but stayed in the 698-712 points range it has traded in since late May.

Japan's benchmark shares rose by 0.4% each, and Indonesia's benchmark notes fell 5.9% after 2000 Blue shares rose in the same period with the Chinese stock index up 0.9%.

Overnight, the fixed income markets were the biggest movers, with some analysts suggesting a reverse in US stimulus efforts and others suggesting a likely clearing of short positions ahead of May CPI.

According to JP Morgan positions in treasuries, short positions were the highest since 2018, according to JP Morgan positioning data last week.

The 10-year Treasury note's benchmark yield dropped on Tuesday to 1.4891% from 1.528% late. A fall below 1.47% would take the yields to the lowest since March 4th.

Also in play was some thought that recently hedge funds were shifting their bond allocation, driven by lower volatility in the bond market, analysts said.

On Wall Street, the S&P 500 came within a whisker of its all-time high in May as healthcare took out big tech along with the stocks but ended 0.1% lower. The Nasdaq Composite fell 0.44% and the Dow Composite 0.09% down to. The markets are looking forward to the European Central Bank policy meeting later in the day where it would likely publish unchanged policy guidance and maintain the Euro area macroeconomic projections.

Also on the global day, expectations are that U.S. CPI will accelerate 0.4% in May, taking the annual pace to 3.4%, according to a Reuters poll.

A substantial upside surprise in inflation could tilt the Fed taper discussion to sooner rather than later, although the majority would still be looking for massive progress toward maximum employment before settling on tapering, ANZ economists wrote in a note.

Although the market has so far bought into the Fed's view that the price rise is transitory and the Fed will not alter its policy guidance for the next week's FOMC meeting, they added.

Analysts said the data would be key for yellow metal as a higher print and the subsequent tapering fears could reduce the gold lustre.

U.S. gold futures declined 3% to $1,889.50 an ounce.

Oil prices slipped after rallying in the previous session on hopes of higher demand from western economies, which are gradually reopening from Coronavirus lockdowns.

Brent crude futures are falling to 72 US cents a barrel, while Brent crude futures were 19 cents lower at $69.69 per barrel.

In the currency market, activity against the USD Yen was muted at 109.58.

The pound was a little weaker at $1.2169 ahead of the ECB meeting, while the euro eased to $1.4100. The Aussie and New Zealand currencies were also a shade lower.

This left the dollar index slightly firmer at 90.140.

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