Asian Shares Inch Up as Investors Brace for China Data, Fed Speakers

STOCK MARKET - SYDNEY. Asian stocks were cautiously higher on Monday as investors braced for the release of China's industrial and retail data, while awaiting a host of U.S. Federal Reserve officials to speak to vindicate market pricing of rate cuts this year.

The guarded optimism is set to extend to Europe when markets open, with pan-region Euro Stoxx 50 futures up 0.2%. Both S&P 500 futures and Nasdaq futures were mostly flat.

In emerging markets, the Turkish lira touched a two-month low after weekend elections looked headed for a runoff, while the Thai baht rallied almost 1% after Thailand's opposition routed military-allied parties also in weekend polls.

On Monday, MSCI's broadest index of Asia-Pacific shares outside Japan reversed earlier losses to be up 0.5%, driven by a late rebound in Chinese and Hong Kong shares after a steep sell-off the week before.

Hong Kong's Hang Seng index charged 1.2% higher while China's blue chips rose 0.6%. Japan's Nikkei advanced 0.7%, building on the optimism from last week during the earnings season.

China's central bank on Monday held rates on medium-term policy loans steady, although expectations are building that monetary policy easing may be inevitable in coming months to support an economic recovery.

Hong Kong Exchanges & Clearing Ltd (HKEX) on Monday added a new Connect scheme linking markets in the financial hub with the mainland by expanding into onshore interest rate derivatives to help offshore investors in Chinese bonds hedge their exposure.

China is due to report monthly industrial production, retail sales and fixed asset investment data on Tuesday.

"A big year-on-year improvement shouldn't surprise given it is measured against a stagnant economy that was in lockdown," said Chris Weston, head of research at Pepperstone.

"However, with China's data throwing up a few concerns of late - we've seen poor import, PPI, and loan data - China's growth is very much at the heart of market moves," said Weston.

Also this week, a host of Federal Reserve officials are speaking, with Chair Jerome Powell set for Friday, and could generate plenty of headlines to move the dial further.

Traders currently put the odds of the Fed holding rates steady at 17.7%, up from 8.5% a week ago, after a report on Friday showed U.S. long-term inflation expectations jumped to the highest since 2011, boosting the dollar and Treasury yields.

However, bets are still on as many as three quarter-point cuts by year-end, after CPI and PPI data supported the case of Fed pausing, given slowing inflation.

Fed Governor Michelle Bowman said on Friday that the U.S. central bank probably will need to raise interest rates further if inflation stays high.

"While we think the directional bias is right, i.e. a cut is the next move rather than a hike, it now may take softening in global growth or sharply weaker growth in order to even meet current market pricing, or fuel further dovish repricing," said John Briggs, global head of economics at NatWest Markets.

Growth concerns, couple with U.S. debt ceiling worries and lingering banking fears, have buoyed the safe-haven dollar as it hovered around five-week highs against major peers on Monday, extending its best weekly rise since September.

It was last at 102.64, after surging 1.4% last week.

U.S. President Joe Biden expects to meet with Congressional leaders on Tuesday for talks to raise the nation's debt limit and avoid a catastrophic default, saying that the talks are moving along.

Concerns about U.S. Congress not raising the debt ceiling on time have created large distortions in the short-end of the yield curve as investors avoid bills that come due when the Treasury is at risk of running out of funds, and pour into alternative issues.

The yield on benchmark 10-year notes was little changed at 3.4775%, after rising 6 basis points on Friday, and two-year yields were steady at 4.004%, having also jumped 10 basis points in the previous session.

Oil prices declined for the fourth straight session. U.S. crude futures fell 0.6% to $69.61 per barrel, while Brent crude futures were down 0.6% to $73.68 per barrel.

Gold prices were 0.4% higher at $2,018.19 per ounce.