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Stocks in Asia go up, but the dollar is cautious before the inflation test

Image: Reuters Berita 24 English - Asia's stock markets went up on Monday on hopes that a key measure of U.S. inflation will show a slow...

Image: Reuters

Berita 24 English - Asia's stock markets went up on Monday on hopes that a key measure of U.S. inflation will show a slowdown. The U.S. dollar, on the other hand, was held back by the possibility of higher interest rates in Europe and Japanese intervention.

Holidays in China and South Korea slowed business, and traders didn't know what to make of Ukraine's surprising victory over Russian forces.

MSCI's broadest index of Asia-Pacific shares outside of Japan went up by 0.5%. It had dropped to a two-year low last week, but it has since recovered a little. After rising 2% last week, Japan's Nikkei added another 1.1%.

Chinese blue chips went up by 1.3% before retail and industry data for the rest of the week, which could show that August was better than July, which was bad.

Futures for the S&P 500 and Nasdaq couldn't build on Friday's gains, so they were flat. Both EUROSTOXX 50 futures and FTSE futures went up by 0.6%.

Bulls are hoping that Tuesday's report on U.S. consumer prices will show that inflation has reached its peak. A Reuters poll shows that falling gas prices will pull down the headline index by 0.1%.

The core is expected to go up by 0.3%, but some analysts think the report could be weaker.

Economists at Westpac said, "Since the economy shrank in the first half and discretionary spending by households is under a lot of pressure, we are probably due for a small bad surprise."

So, they said, "we expect +0.2% for core and -0.2% for headline." "Even if it is reached, you shouldn't assume that it will happen again in October or later. Volatility is likely to remain."

A weak number could bring back the idea that the Federal Reserve will only raise rates by 50 basis points this month. However, given how hawkish policymakers have been lately, the number would likely have to be very weak to have a real effect.

At the moment, the market says that there is an 88% chance that the Fed will raise rates by 75 basis points.

Ethan Harris, a global economist at BofA, is afraid that central banks may go too far if they use real inflation to decide when to stop. The target for the federal funds rate has been raised by the bank to a range of 4.0–4.25%, with a 75bp increase in September and smaller increases after that.

Harris said, "For investors, this means more pressure on interest rates, more weakness in risk assets, and more gains for the already strong dollar."

"In our opinion, these trends won't change until the markets price in the full force of central bank hikes, which hasn't happened yet."


After a month of steady gains, the dollar is now facing profit-taking from a market that has a lot of the currency.

The dollar has risen so quickly against the yen that Japanese officials are getting more and more vocal about how bad it is for their currency. This has led to talk of intervention and put pressure on the Bank of Japan to change its policy of controlling the yield curve.

A senior government official in Japan said on Sunday that the government must do what it takes to stop the yen from falling too much. The yen hit its weakest level against the dollar in 24 years.

But after a drop early on, the dollar soon went up again, rising 0.4% to 143.14 yen, which is still below last week's high of 144.99 yen.

The dollar index was at 108.770. Last week, it went as high as 110.790.

The euro went up 0.4% to $1.0080, which is higher than its recent low of $0.9865.

It helped that Reuters said that policymakers at the European Central Bank see a growing chance that they will have to raise their key interest rate to 2% or more to stop record-high inflation, even though a recession is likely.

Analysts at ANZ found that the dollar went up about 9% against the euro and the Chinese yuan, 12% against the British pound, and 19% against the yen in the last month.

In a note, they said, "The strong USD is putting stress on developing countries because imports priced in USD are getting more expensive."

"Fed speakers are using every chance they get to push a hawkish message, and quantitative tightening is on the horizon, so the USD isn't about to make a big change."

Gold has been hurt by the rise of the dollar and high bond yields. Last week, gold hit a low of $1,690 an ounce, and now it is hovering around $1,713 an ounce. [GOL/]

Even though supply cuts made prices go up by 4% on Friday, oil prices have been going down because of worries about a slowdown in the world economy. [O/R]

Brent fell $1.29 to $91.55 per barrel on Monday, while U.S. crude fell $1.28 to $85.51 per barrel.

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