Asian shares ease as markets await U.S. inflation data

HONG KONG (Reuters) – Asian shares and European futures slipped on Friday as traders edged away from riskier assets amid renewed concerns about COVID-19 and caution ahead of key U.S. inflation data, which also kept currencies in check.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.6%, snapping three days of gains and Japan’s Nikkei shed 0.5%.

In early European trading, the pan-region Euro Stoxx 50 futures fell 0.53% and FTSE futures lost 0.46%

Shares and risk-friendly currencies had performed well earlier in the week, with MSCI’s regional benchmark posting its best day in two months on Tuesday, helped by indications the Omicron strain of the new coronavirus might not be as economically disruptive as first feared.

Despite Friday’s falls, the index is still up 1.7% this week.

However, “as we got towards the end of the week the fact that Europe was much more clearly moving into a sort of lockdown-lite and COVID-19 case numbers in the U.S. are starting to ratchet up flipped things a little bit,” said Rob Carnell, head of research Asia Pacific at ING.

“Also there is a slight sense of ‘let’s not have too much risk on the table for the weekend’. Of course, there is CPI out in the U.S. – but I think we’ve all woken up to the fact that there is inflation in the U.S. now,” he added.

U.S. consumer price index (CPI) for November is due later Friday and a Reuters poll of economists expect it to have risen 6.8% year-on-year, overtaking a 6.2% increase in October, which was the fastest gain in 31 years.

Any upside surprise will likely be interpreted as a case for a faster Fed taper and bring forward expectations for interest rate rises.

Elsewhere, shares in China Evergrande Group lost 1.5% after Fitch downgraded it to restricted default status.

However, contagion was limited and an index tracking mainland Chinese developers listed in Hong Kong dipped just 0.36%, outperforming the local benchmark off 0.66%.

Markets more broadly are much less concerned by the latest development in the long running Evergrande saga than they were a few months ago.

“This issue has been going on for two-and-a-half months now, and markets don’t seem to be as fussed because a default on Evergrande’s offshore debt has seemed highly likely,” said Shane Oliver, head of investment strategy at AMP Capital.

Also in China, the central bank on Thursday directed financial institutions to hold more foreign exchange in reserve for a second time this year, which markets interpreted as an attempt to slow a recent rapid appreciation of the yuan.

This caused the yuan to lose about half a percent in offshore trade on Thursday. It was volatile on Friday and last sat at 6.3697.

Other currency moves were muted. The dollar index held firm ahead of the CPI data, and was heading towards its seventh consecutive weekly rise, its longest since mid 2014.

The euro also took a breather having jumped 0.7% on Wednesday, in line with an overall risk friendly mood, before falling 0.4% on Thursday as sentiment started to turn.

The risk-off tilt caused longer dated U.S. Treasury yields to slip a little overnight before steadying. Benchmark 10-year Treasury notes were last at 1.4888%.

The two-year yield stayed elevated at 0.7086%.

Oil also lost ground on Friday, but like equities was heading for a weekly gain. U.S. crude dipped 0.14% to $70.84 a barrel. Brent crude fell 0.2% to $74.27. [O/R]

Gold, however, edged higher. The spot price rose 0.16% to $1,777.3an ounce. [GOL/]

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