Asian shares mixed ahead of key US inflation data

TOKYO [Japan]: Asian shares were mixed Thursday ahead of a closely watched report on US inflation that is viewed as a good indicator of whether Wall Street's recent rising optimism is warranted or overdone.

Japan's benchmark Nikkei 225 wobbled in early trading and was up less than 0.1 per cent at 26,448.13 in afternoon trading. Australia's S&P/ASX 200 jumped 1.2 per cent to 7,280.40.

South Korea's Kospi gained 0.5 per cent to 2,370.58. Hong Kong's Hang Seng lost 0.1 per cent to 21,406.02, while the Shanghai Composite shed nearly 0.2 per cent to 3,156.48.

"All eyes are on the arrival of US inflation data this week," Clifford Bennett, chief economist at ACY Securities, said in a report.

Japan's Finance Ministry reported the country's current account returned to the black in November for the first time in two months, reflecting a slimming of the trade deficit as the yen regained value against the US dollar and other currencies.

On Wall Street, the S&P 500 climbed 1.3 per cent to 3,969.61 for its second straight gain. The Dow Jones Industrial Average rose 0.8 per cent to 33,973.01, while the Nasdaq composite gained 1.8 per cent to 10,931.67.

Stocks began 2023 with gains driven by hopes that cooling inflation and a slowing economy may lead the Federal Reserve to ease off its steep interest rate hikes.

Such increases can help stamp out high inflation, but they also slow the economy and raise the risk of a recession while hurting prices for stocks and other investments.

Economists expect CPI Thursday's report to show inflation is continuing to cool from its summertime peak, down to 6.5 per cent last month from 7.1 per cent in November and from more than 9 per cent in June.

The hope on Wall Street is that such a trend toward normal could convince the Fed to soon halt its blistering set of rate increases, often triple the usual amount.

Some investors are even betting the Fed will cut interest rates in the second half of this year to help prop up an economy that's beginning to show pockets of weakness because of past rate hikes. Rate cuts typically act like steroids for markets, boosting prices for stocks and other investments.

"One real thing I think underpinning the market is simply the fact that the market doesn't believe the Fed when they say they're going to keep hiking this year," said Brad McMillan, chief investment officer for Commonwealth Financial Network.

Of course, that also means investors could be setting themselves up for disappointment. If Thursday's data and other reports don't show inflation is improving as much as expected, it could mean the Fed would have to get tougher on interest rates.

The Fed has already said repeatedly it plans to raise its key overnight interest rate further, past its current perch sitting in a range of 4.25 per cent to 4.50 per cent. That rate began last year at its record low of virtually zero.

The central bank has also insisted it plans to keep rates high for a while to ensure inflation is really beaten down. It does not envision any rate cuts happening this year, and it's even said that any "unwarranted" rallies on Wall Street "driven by a misperception" would only make the mission of returning inflation to normal more complicated.

The yield on the two-year Treasury, which tends to track expectations for Fed action, dipped to 4.22 per cent from 4.24 per cent late Tuesday. The 10-year Treasury yield, which helps set rates for mortgages and other important loans, fell to 3.52 per cent from 3.61 per cent.

Later this week, companies will also begin reporting how much profit they made during the last three months of 2022. Bank of America, Delta Air Lines, JPMorgan Chase and UnitedHealth are among those reporting results on Friday.

In energy trading, benchmark US crude gained 9 cents to USD 77.50 a barrel. It jumped USD 2.29 to 77.41 on Wednesday. Brent crude, the international pricing standard, picked up 12 cents to USD 82.79 a barrel.

In currency trading, the US dollar slipped to 131.46 Japanese yen from 132.44 yen. The euro cost USD 1.0770, up from USD 1.0757.