Asia shares on edge for inflation, earnings reports

HONG KONG: Asian share markets dawdled on Monday as investors braced for U.S. and Chinese inflation data, along with a corporate reporting season where robust results are needed to justify high stock valuations. Geopolitical tensions were also on the radar as disruptions in the Red Sea raised oil prices and shipping costs in Europe, while the Israeli conflict with Hamas threatened to spread to Lebanon.

There was more promising news from Washington where U.S. congressional leaders agreed on a $1.6 trillion spending deal aimed at averting a partial government shutdown. The early action was cautious with MSCI's broadest index of Asia-Pacific shares outside Japan flat, after retreating 2.5% last week.

Japan's Nikkei was closed for a holiday, though futures were trading up at 33,500 compared to Friday's cash close of 33,377. The index has been underpinned by a drop in the yen as the dollar enjoyed a broad bounce. Chinese blue chips lost another 0.5%, having slid almost 3% last week.

EUROSTOXX 50 futures were flat and FTSE futures a shade firmer. S&P 500 futures and Nasdaq futures were both up 0.1%. The S&P 500 lost 1.5% last week to break a nine-week winning stretch, which had been its longest since 1989. The index's 24% rally last year means valuations are looking a little stretched so much is riding on the results season.

Major banks including JPMorgan Chase and Citigroup start the reporting rush on Friday with hopes high for upbeat profits. Consensus forecasts are that S&P 500 profits rose 3% on the year, and Goldman Sachs sees risks of an even higher outcome.

"The bar ahead of 4Q results is higher than in recent quarters, but we expect S&P 500 firms in aggregate will beat analyst forecasts," Goldman said in a note. "Our baseline 2024 forecast is S&P 500 EPS rises by 5% year/year, and we see potential upside from stronger U.S. economic growth, lower interest rates, and a weaker USD."

EYEING THE CPI

Futures are pricing in around 136 basis points of U.S. rate cuts next year, compared to the Federal Reserve's dot plot of 75 basis points.

The probability of a move as early as March has been pared somewhat to a still-high 64%, and that will likely shift again depending on Thursday's U.S. consumer price report. Forecasts are for core CPI to rise 0.2% in December, pulling annual inflation down to 3.8% and its lowest since mid-2021.

Analysts at TD Securities are tipping an increase of just 0.1% thanks to a large drag from used car prices and slowing rents. There are at least four Fed speakers on the docket this week to offer their outlooks, with New York Fed President John Williams likely to be the most influential.

Inflation data from China and Tokyo are also due this week, with analysts looking for deflation to ease a touch in China. In currency markets, the dollar surrendered a sliver of its recent gains to touch 144.39 yen, having climbed 2.5% last week from 140.80.

The euro was a fraction firmer at $1.0948, after slipping 0.9% last week. The dollar's rally was a headwind for gold, which was flat at $2,043 an ounce.

Oil prices shed early gains and turned lower as price cuts from Saudi Arabia offset the risk of supply disruptions in the Red Sea. Brent shed 34 cents to $78.42 a barrel, while U.S. crude fell 31 cents to $73.50 per barrel.