SINGAPORE, Oct 13 (Reuters) – Asian shares fell on Friday, their steepest one-day percentage decline in a week, as stronger-than-expected U.S. consumer price data strengthened the case for the Federal Reserve to raise rates. long
MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) fell 1.2%, hitting a three-week high on Thursday.
However, it is still set for a nice gain of 1.4% for the week, sparing three weeks of losses.
Eurostoxx 50 futures were down 0.19%, German DAX futures were down 0.14% and FTSE futures were down 0.05%, as the sour mood in Europe continued.
Inflation reports from Sweden, Spain and France will be in focus later in the day.
A rise in U.S. consumer prices in September led to a surprise rise in rental costs and traders now see a strong chance the Fed will deliver another hike this year.
Futures contracts that settle on the central bank’s policy rate reflect a 40% probability of a rate hike in December, compared with a 28% chance seen before the CPI report.
Ryan Brantham, head of global capital markets for North America at Validus Risk Management, said the data highlighted the challenges the central bank faces in bringing inflation back to its 2% target.
Sep. Separate data also showed that in the week ended March 30, a proxy for hiring, the number of Americans receiving benefits rose by 30,000 to an even lower 1.702 million after the initial week of aid.
“Labor market softening is key to the Fed’s goal of returning inflation to target, and hawks calling for at least another hike will be supported by these numbers,” Brandom said.
The inflation report and weak demand for U.S. 30-year bond yields sent yields higher for Treasuries on Thursday.
In Asian hours on Friday, the yield on 10-year Treasury notes fell 4.1 basis points to 4.670%, but was far from the two-week low of 4.5300% touched a day earlier.
Recent gains in stocks and a decline in Treasury yields followed comments by Federal Reserve officials that US interest rates – driving global borrowing costs – may have finally peaked.
“Much of the ‘good’ work done last week on the flattening of the US yield curve was undone by the latest US CPI report,” said Ray Adrill, head of FX strategy at National Australia Bank.
Data released on Friday showed China’s consumer prices were flat in September, while factory-gate prices contracted at a slower pace, indicating lingering deflationary pressures.
But China’s exports and imports contracted at the slowest pace for a second straight month in September, adding to signs of gradual stabilization in the world’s second-largest economy.
China’s blue-chip stock index CSI300 (.CSI300) fell 1.1%, while the Hang Seng Index (.HSI) fell 2%. Japan’s Nikkei (.N225) fell 0.53%, while Australia’s S&P/ASX 200 index (.AXJO) lost 0.47%.
The week’s sharp escalation in Middle East tensions has ensured a cautious mood across markets.
Investors will focus on comments from Federal Reserve Chairman Jerome Powell, who is scheduled to speak on October 19, ahead of the US central bank’s next interest rate decision. The central bank will next hold an Oct. 31-Nov. 1.
A risk-averse mood also prevailed in the money market, with the dollar gaining overnight. Against a basket of currencies, the dollar gained 0.8% overnight to settle at 106.40, down 0.103%.
The euro was up 0.19% at $1.0548 and sterling was up 0.24% at $1.2204. The dollar’s rise has again put the Japanese yen under pressure, with the yen trading at 149.60 to the dollar.
Gold prices rose on Friday, but were at a two-week low in the previous session. Spot gold rose 0.4% to $1,876.79 an ounce.
Oil prices rose on Friday after the US tightened sanctions against Russian crude exports, raising supply concerns in an already tight market. U.S. crude was up 0.95% at $83.70 a barrel, while Brent was up 0.77% at $86.66.
Brent is set for a weekly gain of 2%, while WTI is set to climb 1% for the week on fears of potential disruptions to Middle East exports due to the Gaza crisis.
Report by Ankur Banerjee; Editing by Edwina Gibbs
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