Asian shares advance as inflation shock fades to background

Asian share prices advanced on Friday as a shock from a surprisingly strong U.S. inflation reading ebbed, with investors hopeful that the worst price hikes could be soon over.

Japan‘s Nikkei gained 1.1%, helped by brisk earnings. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.25% but mainland Chinese shares were softer, with CSI 300 index slipping 0.3%.

European stocks are expected to edge higher, with Euro Stoxx futures up 0.15% and Britains FTSE futures 0.1% higher.

U.S. stock futures ticked up 0.1% in Asia after a mixed session on Thursday when the S&P 500 ended 0.06% higher while tech-heavy Nasdaq rose 0.52%.

The worlds stock prices posted their biggest fall in over a month on Wednesday following a surprisingly strong reading on U.S. inflation.

The U.S. consumer price index rose 6.2% year-on-year in October, the strongest advance since November 1990.

“Inflation is obviously a risk to watch. But stock prices will face a major crash only if the Federal Reserve turns out to be completely wrong in its assessment and is forced to raise interest rates rapidly. Thats not where we are now,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

While the inflation data suggested that the current wave of price spikes due to chronic worldwide supply constraints could have more staying power than many had hoped, many investors still think inflationary pressure will eventually ease, rather than strengthen.

“If we get over the year-end holiday shopping season, when demand should be peaking, perhaps inflation could subside,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

“U.S. holiday sales are expected to rise 8.5% to 10% this year, with some consumers said to be starting to buy earlier than usual because of worries about supply glitches. If thats the case, we could see a pretty strong retail sales number next week, which would be positive for stocks,” he added.

U.S. retail sales for October are due next Tuesday.

Bond yields ticked up, with the 10-year U.S. Treasuries yield rising 0.8 basis points to 1.565% on Friday after a market holiday on Thursday.

Money markets have already priced in two rate hikes next year.

In the currency market, the dollar held firm after Wednesdays strong U.S. inflation reading fanned expectations the Fed would tighten monetary policy faster than previously thought.

An index of the dollar against six other currencies rose to a 16-month high of 95.264 as the euro slipped to $1.1436, its lowest since July last year.

The yen softened to 114.30 per dollar, near its four-year low hit last month while commodity currencies such as the Australian dollar and the Canadian dollar were on a back foot.

The Australian dollar hit a five-week low of $0.7277 while the Canadian dollar slipped to C$1.2600 per dollar, a low last seen in early October.

“It is interesting if a growing number of investors are selling commodity currencies on expectations that the Feds tightening will drive down commodity prices,” said Makoto Noji, chief FX strategist at SMBC Nikko Securities.

Oil prices dipped as the market grappled with a stronger U.S. dollar along with concern over increasing U.S. inflation, and after OPEC cut its 2021 oil demand forecast due to high prices.

Brent crude futures were down 0.65% at $82.33 per barrel while U.S. West Texas Intermediate (WTI) futures dropped 0.58% to $81.12 per barrel.

Gold prices stayed near Wednesday‘s five-month highs as investors sought inflation hedges. They last stood at $1,859 per ounce, near Wednesday’s high of $1,868.5.

(Reporting by Hideyuki Sano; Editing by Sam Holmes)