By Andrew Galbraith

SHANGHAI (Reuters – Asian shares were mixed, but the dollar fell on Thursday as global investors assessed strong U.S. inflation data not enough to affect the Federal Reserve’s already hawkish outlook.

Investors felt reassured when the U.S. Consumer Price Index rose 7% during the 12-month period December to December. It was the highest annual growth in over 40 years. However, it is not surprising that investors noticed the Fed looking set for a March rate increase.

Jim McCafferty from Nomura, Nomura’s APAC equity research joint chief, stated that markets in Asia where inflation pressures are generally less severe in major economies could provide attractive risk hedging options.

“If you are a global investor and you’ve seen very significant stock market gains in the U.S. during 2021, if you are seeing inflation as a threat then a lot of investors may be tempted to reallocate funds away from developed equity markets in the West into the mix of developed and developing markets in East Asia,” he said.

MSCI’s largest index of Asia-Pacific shares was 0.1% more after posting its highest daily gain in one month on Wednesday. After a gain of nearly 2% the day before, MSCI lost 0.87%.

Australian shares gained 0.42% and Chinese blue-chips lost 0.28%.

Wall Street made small gains over the overnight hours, posting small gains in Asia with Wall Street’s rising 0.28%. The up 0.23% was the result of the uneven Asia performance. The index rose by 0.11%.

China’s People’s Bank will announce further easing measures in support of slowing economic growth. But, economists, policy experts, and others suggest that it won’t cut interest rates aggressively.

These comments highlight the differences in policy and economic outlooks among the two world’s largest economies.

Even though longer-dated U.S. yields dropped after Wednesday’s inflation data, Fed funds futures anticipate nearly four rate rises this year. Analysts believe there is still room to increase the pace of rate increases.

Jonathan Petersen of Capital Economics, a markets economist, stated that “our expectation for sustained price pressures means we believe that the Fed will continue tightening policy into 2023 by greater than investors currently anticipate.” He also said that the U.S. 10 year yield would reach 2.25 percent by year’s end and 2.75 by 2023.

The U.S. 10-year yield climbed to 1.7499% Thursday after dropping to 1.725% Wednesday. From Wednesday’s closing of 0.907%, the policy-sensitive 2 year yield rose to 0.9229%.

On Wednesday, the Treasury yields dropped and hit dollar. Dollar fell below support levels on Thursday. At 94.963 the currency was at its lowest point of the day, slipping 0.05%. However, it was up against the Japanese yen by 114.60.

At $1.1443, the euro was unchanged.

After hitting their highs in almost two months, oil prices fell a day later. This was due to a fall in the dollar and tighter supplies. Investors also bet that the Omicron coronavirus variant will have limited economic effects. [O/R]

The global benchmark dropped 0.07%, to $84.61 per barrel. U.S. West Texas Intermediate crude oil edged down to $82.58 a barrel.

It remained at $1,824.54 an troy ounce.