Asian shares track Wall Street’s inflation optimism, yen recoups losses

SYDNEY  – Asian shares tracked the bounce on Wall Street on Tuesday, as investors remained sanguine that key U.S. economic data due later would show an easing in inflation, while the yen recouped losses ahead of the nomination of a new central bank governor.

Japan’s currency had weakened on uncertainty surrounding Kazuo Ueda’s probable appointment as the next governor of the Bank of Japan, a surprise choice that could improve the odds of an end to its unpopular yield control policy.

MSCI’s broadest index of Asia-Pacific shares outside Japan rebounded 0.4 percent. Japan’s Nikkei rose 0.6 percent.

Chinese blue chips climbed 0.2 percent, while Hong Kong’s Hang Seng Index rose 0.4 percent.

In some positive news for geopolitics, U.S. Secretary of State Antony Blinken is considering meeting top Chinese diplomat Wang Yi at the Munich Security Conference this week, after the United States shot down what it said was a Chinese spy balloon and other flying objects.

Later Tuesday, the U.S. Bureau of Labor Statistics will release January’s Consumer Price Index (CPI) data, which is expected to show how effective Federal Reserve policy tightening has been in taming inflation.

Analysts expect headline CPI to rise 0.5 percent in January, with the core number seen advancing to 0.4 percent from 0.3 percent the previous month, according to a Reuters poll. On an annual basis, CPI likely eased to 6.2 percent, from 6.5 percent in December.

Overnight on Wall Street, the S&P 500 rose 1.2 percent, while the Nasdaq rallied 1.5 percent and Dow Jones was up 1.1 percent.

“The bottom line for us is two-fold. First, inflation is coming down, but it will not be a smooth decline. A return to target for inflation was never very likely this year, so patience is required regardless,” said Seth Carpenter, chief global economist at Morgan Stanley.

“But second, the recent high wage inflation does not spell failure for the Fed. Services inflation is not too far off target, the link from wages to inflation is there, but small, and both services wage and price inflation are trending down despite a strong labour market,” Carpenter added.

Treasuries rallied a little, with the yield on the benchmark 10-year government bonds easing 2 basis points to 3.6940 percent.

The two-year bond yields also eased from their three-month highs to hover at 4.5090 percent, compared with the previous close of 4.5340 percent.

In the currency markets, the dollar remained subdued ahead of the inflation data, after suffering a 0.3 percent loss against its major peers last session.

It weakened 0.2 percent against the Japanese yen to 132.13 yen, after gaining 0.8 percent the previous day.

On Tuesday, the Japanese government is expected to name academic Kazuo Ueda as its pick to become next central bank governor.

Japan’s 10-year bond yields hovered at 0.5 percent – hitting the upper limit of the range – as investors bet the yield control policy would wound up eventually under the new governor.

BlackRock Investment Institute on Monday cut Japanese stocks to “underweight”, saying that a Bank of Japan (BOJ) policy change away from its “ultra-loose” monetary strategy could push global yields higher and reduce risk appetite.

In the oil market, Brent crude futures eased 0.7 percent to $85.99 while U.S. West Texas Intermediate (WTI) crude also fell 1 percent to $79.2.

Gold was slightly higher. Spot gold traded at $1,855.59 per ounce.