Asian share markets were taking a breather on Monday after last week's sweeping rally as a top U.S. central banker warned investors against getting carried away over one inflation number, nudging up bond yields and the dollar.
A modest miss on U.S. inflation was enough to see two-year Treasury yields dive 33 basis points for the week and the dollar lose almost 4%, the fourth biggest weekly decline since the era of free-floating exchange rates began over 50 years ago.
However, the resulting easing in U.S. financial conditions was not entirely welcomed by the Federal Reserve with Governor Christopher Waller saying it would take a string of soft reports for the bank to take its foot off the brakes.
Waller added the markets were well ahead of themselves on just one inflation print, though he did concede the Fed could now start thinking about hiking at a slower pace.
Futures are wagering heavily on a half-point rate rise to 4.25-4.5% in December and then a couple of quarter-point moves to a peak in the 4.75-5.0% range.
"The CPI downside surprise aligns with a broad range of indicators pointing to a downshift in global inflation that should encourage a moderation in the pace of monetary policy tightening at the Fed and elsewhere," said Bruce Kasman, head of economic research at JPMorgan.
"This positive message needs be tempered by the recognition that downshift in inflation will be too little for central banks to declare mission-accomplished, and more tightening is likely on the way."
MSCI's broadest index of Asia-Pacific shares outside Japan added 0.2%, after jumping 7.7% last week.
Japan's Nikkei was flat, while South Korea firmed 0.3%. S&P 500 futures dipped 0.2%, while Nasdaq futures lost 0.3%.
EYES ON CHINA
Dealers were also waiting to see if Chinese stocks could extend their big rally amid reports regulators have asked financial institutions to extend more support to stressed property developers.
Blue chips climbed on Friday helped by a slew of changes to China's COVID curbs, even as the country reported more cases over the weekend.
"It's hard to see how the case news is anything but negative from an economic standpoint, but it's the symbolism of the movement, however small, in the zero COVID strategy that markets are happily latching onto," said Ray Attrill, head of FX strategy at NAB.
U.S. President Joe Biden will meet Chinese leader Xi Jinping in person on Monday for the first time since taking office, with U.S. concerns over Taiwan, Russia's war in Ukraine and North Korea's nuclear ambitions on top of his agenda.
The news on COVID rules had stoked a short-covering bounce in the yuan last week, which added to broad pressure on the dollar as yields dived. The dollar regained a little ground early on Monday as its index added 0.4% to 106.870, but remained well short of last week's 111.280 top.
The euro eased a touch to $1.0324, after climbing 3.9% last week, while the dollar firmed to 139.77 yen following last week's 5.4% drubbing.
The dollar lost almost as much to the Swiss franc, steered in part by warnings from the Swiss National Bank that it would use rates and currency purchases to tame inflation.
Sterling eased back to $1.1790 ahead of the UK Chancellor's Autumn Statement on Thursday where he is expected to set out tax rises and spending cuts.
Crypto currencies remained under pressure as at least $1 billion of customer funds were reported to have vanished from collapsed crypto exchange FTX.
Bitcoin was trading down 2.4% at $16,386, having shed almost 22% last week.
The dollar's recent retreat provided a much-needed fillip to commodities, with gold up at $1,768 an ounce after jumping over $100 last week. [GOL/]
Oil futures extended their gains with Brent up 86 cents at $96.85, while U.S. crude rose 80 cents to $89.76 per barrel.
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