Asia shares subdued as inflation, politics loom large

SYDNEY – Asia shares were subdued on Monday in a countdown for US price data that investors hope will show a renewed moderation in inflation, while markets were on alert for possible Japanese intervention as the dollar tested the 160 yen barrier.

Geopolitics also loomed large, with the first US presidential debate on Thursday and the first round of voting in the French election at the weekend.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.1%, after touching a two-year top last week. South Korean stocks fell 0.5%.

S&P 500 futures and Nasdaq futures were both up around 0.1%. Shares in Boeing could face pressure after Reuters reported US prosecutors are recommending criminal charges be brought against the aircraft maker.

Japan’s Nikkei eased 0.1%, with the continued decline in the yen putting pressure on the Bank of Japan to tighten policy despite patchy domestic data.

Minutes of the central bank’s last policy meeting out on Monday showed there was much discussion about tapering its bond-buying and raising rates.

Japan’s top currency official was out early to voice disapproval with the yen’s latest drop which saw the dollar reach 159.87 on Friday.

The dollar was trading just a shade softer at 159.73, eyeing the 160.17 level where Japan was thought to have spent around USD 60 billion buying the yen back in late April and early May.

Demand for carry trades, borrowing yen at low rates to buy higher-yielding currencies, has also seen both the Australian and New Zealand dollars reach 17-year peaks on the yen.

Even the euro was testing recent highs at 170.87 yen, despite being saddled with a round of soft manufacturing surveys (PMI) which left it stuck at USD 1.0688.

“The decline in the Euro area flash June PMI raises some concern that the nascent rebound is being cut short,” wrote analysts at JPMorgan in a note.

“The abruptness of the drop is notable against the backdrop of the French election, which was mentioned explicitly by firms as a reason for the drag.”

France’s far-right National Rally (RN) party and its allies were leading the first round of the country’s elections with 35.5% of the vote, according to a poll published on Sunday.

Manufacturing surveys from the United States, in contrast, showed activity at a 26-month high in June, though price pressures still subsided considerably.

The latter shift whetted appetites for the personal consumption expenditures (PCE) price index due on Friday. Annual growth in the Federal Reserve’s favored core index is expected to slow to 2.6% in May, the lowest in more than three years.

Such a result would likely reinforce market bets on a Fed rate cut as early as September, which futures currently price as a 65% prospect.

There are at least five Fed speakers on the docket this week, including San Francisco Fed President Mary Daly and Fed Governors Lisa Cook and Michelle Bowman.

In commodity markets, gold felt the burden of a firm dollar and dipped to USD 2,317 an ounce.

Oil prices also eased a touch after rising around 3% last week.

Brent slipped 40 cents to USD 84.84 a barrel, while US crude lost 39 cents to USD 80.34 per barrel.

(Reporting by Wayne Cole; Editing by Muralikumar Anantharaman)