Asian shares fluctuate as investors shrug off Wall Street rebound ahead of US inflation data

Treasuries saw mild moves, with traders paring the chance of a half-point rate reduction at the Fed’s upcoming September meeting to about 20% from as high as 50% last week. Australian bond yields drifted lower early Tuesday. The dollar rose against almost all its Group-of-10 peers.

While the jury is out on whether the world’s no. 1 economy can thread the needle between easing inflationary pressures while avoiding recession, its biggest rival is facing a different challenge. Deflation stalking China since last year is now showing signs of spiraling, threatening to worsen its outlook and raising calls for immediate policy action.

Data released Monday confirmed that apart from food costs, consumer price growth barely registered in large swathes of the economy at a time when incomes are sagging.

Meanwhile, China hawks in the US House overcame a last-ditch lobbying effort to pass legislation that would blacklist Chinese biotech companies and their US subsidiaries. The bill now goes to the Senate.

Traders in Asia will also be closely watching iron ore on Tuesday, which in the previous session sank below $90 a ton for the first time since 2022 before closing 1.1% higher. Industrial commodities are facing sustained pressure from tepid Chinese demand and gathering worries over global growth.

On Wednesday, a US government report is expected to show the consumer price index rose 2.6% in August from a year earlier, according to the median forecast of economists surveyed by Bloomberg. That would be the smallest increase since 2021. There will be little new guidance from Fed officials, who are in the traditional blackout period ahead of the September 17-18 meeting.

“Inflation matters,” said Chris Low at FHN Financial. “Weaker numbers might encourage the Fed toward a 50 basis-point cut, while anything higher could lock in 25 basis points.”

Global equities were net sold for the eighth straight week led by North America, according to Goldman Sachs Group Inc.’s prime brokerage desk report for the week ended Sept. 6. The move is a continuation of a trend that, broadly speaking, started in May as funds began a big unwind of their positions in order to get more cash readily on hand for possible dislocations around the US presidential election.

“Slowdowns do not necessarily portend recessions, nor are stock market corrections necessarily the harbinger of bear markets,” said Konstantinos Venetis at TS Lombard. “But the mix of rising macro (growth) and political (US election) uncertainty increasingly puts the burden of proof on the bulls in the near term.”

Oil held a one-day gain as a risk-on tone returned to wider markets. Gold held a small advance with markets looking ahead to the US inflation data. Bitcoin fell below $57,000.