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Asia stocks relieved by payrolls, inflation test looms -Breaking

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© Reuters. FILE PHOTO A protective mask-wearing man walks by an electronic display board showing Japan’s Nikkei Index outside of a Tokyo brokerage, Japan on September 21st, 2021. REUTERS/Kim Kyung-Hoon

Wayne Cole

SYDNEY, (Reuters) – Asian shares rose on Monday after risk assets enjoyed the optimism of the October payrolls report. However, caution is warranted before a U.S. Inflation reading that may spook rate horses.

Investors cheered the passage by Congress of a U.S. infrastructure bill worth $1 trillion, but a larger social safety net plan is still elusive.

The weekend’s data also revealed that China’s October exports exceeded expectations, but imports lag behind.

Initial moves were moderate with MSCI’s Asia-Pacific broadest index outside Japan increasing 0.1%. However, it was only 0.3% less than the five-week high.

After 10 consecutive sessions of gains, Nasdaq futures fell 0.2%. This left the index feeling overextended. The index fell 0.1%.

Friday’s U.S. strong payrolls report contained upward revisions of the prior two months as well as another solid reading regarding wages.

A tight labour market coupled with disruption in global supply chains will result in another strong reading for U.S. Consumer Prices due Wednesday. Any upward surprise is likely to revive talk about an earlier Federal Reserve rise.

Analysts point out that an alternative measure for core trimmed means inflation has increased to 3.6% per year.

“Another acceleration in the monthly annualised trimmed CPI will reinforce our view that the Fed is behind the curve,” said Kim Mundy, a senior economist & currency strategist at CBA.

The FOMC will tighten its monetary policy sooner than it should. This increases the chance of inflation being brought under control.

On Monday, six Fed officials will speak. Vice Chair Richard Clarida is likely to be the focus of attention as he discusses Fed and ECB policies.

Treasuries managed to rally last week despite some volatility, partly due to the huge fall in UK bond yields. Short-dated UK debt had its strongest week since 2009, when it was not given a chance for a hike by Bank of England.

The market pushed out the timing and pace for tightening, not only in the United States but also Europe. Fed Funds are now pricing a rate hike fully in September 2022 and not July 2022. A second increase will be priced for February 2023, rather than December 2022.

The yields of 10-year Treasuries fell 10 basis points over the past week and were at 1.46 percent for their last time.

After the release of payrolls data, the dollar had reached a record high for more than a year. The plunge took some steam off the dollar. From a peak of 94.634, the dollar was at 94.290.

The BoE shock decision still left sterling at 1.4% and traded at $1.3489 last week, while the euro reached a 16-month low before stabilizing at $1.1563.

More trouble was had by the dollar in sustaining its bullish run against Japanese yen. It reached support just above 113.25.

Bond yields fell, but gold’s rebound was good news, as it offers no fixed returns and pushed the price up to $1815 an ounce

The U.S. called for oil prices to rise despite demand approaching pre-pandemic levels, but OPEC+ producers rebuffed the request. [O/R]

Saudi Aramco (SE:) raised the official selling price for crude oil to all global buyers.

The price of a barrel rose 22c to $82.96, and fell 34c to $81.61

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