Asian stocks were mixed Tuesday as attention turned to crucial US inflation data that could play a pivotal role in the Federal Reserve's decision-making on interest rates, with investors lowering their expectations for how many cuts it will deliver.
With consumer prices picking up in January and February, the jobs market still strong and the economy in rude health, traders have regularly tweaked their forecasts for monetary policy easing this year, and some are even contemplating no cuts before 2025.
Stocks surged in New York on Friday after closely watched March non-farm payroll figures came in way above estimates, with traders focusing on the tepid wage growth.
But a miss to the upside in this week's consumer price index report could send shivers through markets, analysts warn.
"This upcoming release is arguably the most critical economic print of the year," said Stephen Innes at SPI Asset Management.
"Investors eagerly await this report in hopes that it will offer more insights into the Federal Reserve's potential timeline for rate cuts and the frequency of such cuts.
"The big problem hiding in plain sight is that a larger segment of the investment community is even considering the prospect of no rate cuts this year, adding further uncertainty to the market outlook."
Chris Larkin at E*Trade from Morgan Stanley added: "While the Fed was hesitant to read too much into back-to-back months of higher-than-expected inflation data, a third month may lead them to change their tune."
Investors are now expecting about 60 basis points of cuts this year -- suggesting just two reductions -- with a less than 50 percent chance of three, according to Bloomberg News.
However, the Fed's Chicago chief Austan Goolsbee warned that not loosening monetary policy could backfire.
"You've got to pay attention to how long... you want to be that restrictive," he said on Chicago's WBEZ radio station.
"If you're there too long, the unemployment rate is going to start going up," he added.
The European Central Bank's policy meeting Thursday is expected to end with no change, but an improving inflation outlook has ramped up bets it will begin cutting soon.
Wall Street's three main indexes ended a tepid day on a flat note, and Asia fluctuated through the morning.
Tokyo rose on a weaker yen, which is approaching the 152-per-dollar level many think could spark an intervention by Japanese authorities.
Hong Kong, Sydney, Singapore and Taipei were also in positive territory, but Shanghai, Seoul and Wellington slipped.
The end of the week also sees the start of the US earnings season, with JPMorgan, Wells Fargo and Citigroup first up.
The results will be closely followed for an idea about the impact of high inflation and interest rates on companies' bottom lines, particularly in light of the strong rally in equities that has been partly based on confidence in future profits.
But JPMorgan chief Jamie Dimon warned Wall Street markets were overvalued and said "persistent inflationary pressures" could see borrowing costs go higher.
Tokyo - Nikkei 225: UP 0.5 percent at 39,540.76 (break)
Hong Kong - Hang Seng Index: UP 1.0 percent at 16,905.96
Shanghai - Composite: DOWN 0.2 percent at 3,039.84
Dollar/yen: DOWN at 151.84 yen from 151.85 yen on Monday
Euro/dollar: DOWN at $1.0858 from $1.0861
Pound/dollar: DOWN at $1.2654 from $1.2656
Euro/pound: DOWN at 85.79 pence from 85.80 pence
West Texas Intermediate: UP 0.4 percent at $86.75 per barrel
Brent North Sea Crude: UP 0.4 percent at $90.73 per barrel
New York - Dow: FLAT at 38,892.80 (close)
London - FTSE 100: UP 0.4 percent at 7,943.47 (close)
