Asian shares wavered on Thursday after a lackluster performance on Wall Street overnight and ahead of a key U.S. jobs report due out the following day, while the dollar stood near a seven-week high against a basket of currencies.
Market reaction was muted to a slowdown in China’s annual consumer inflation in December, which decelerated to 2.5 percent from the previous month’s 3 percent, more than what the market had expected.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.2 percent after snapping a five-day losing streak on Wednesday.
Despite the yen’s weakness, Japan’s Nikkei benchmark .N225 shed 1.4 percent, giving up some of its 1.9 percent bounce in the previous session after losing nearly 3 percent in the first two trading days of 2014.
Overnight, the U.S. Standard & Poor’s 500 .SPX finished nearly flat, while the Dow Jones industrial average .DJI slipped 0.4 percent.
The dollar .DXY was up 0.1 percent at 81.103 against a basket of major currencies, not far from a seven-week high of 81.166 set on Wednesday after payrolls processor ADP said U.S. private employers added a bigger-than-expected 238,000 jobs in December, the strongest increase in 13 months.
The upbeat data, two days before the nonfarm payroll report, also drove U.S. short-term yields and market rates higher. According to CME FedWatch, short-term U.S. interest rates futures implied traders now assign a 60 percent probability for the first Fed rate hike as early as April 2015.
Friday’s U.S. jobs report will further indicate how the world’s largest economy is faring – and therefore how fast the Federal Reserve will scale back stimulus. Economists polled by Reuters have forecast 196,000 jobs were added to the U.S. economy in December.
“If it exceeds the forecast sharply, say, way higher than 200,000 jobs, we need to watch out for a possible rise in U.S. long-term interest rates,” said Nobuhiko Kuramochi, a strategist at Mizuho Securities in Tokyo.
Yet, minutes from Fed’s December 17-18 meeting showed Fed policymakers were keen to steer a cautious path and to make it clear that future decisions were not set in stone, as they began reducing its monthly bond purchases to $75 billion from $85 billion this month.
“While the committee was clearly attentive to the impact of taper on financial conditions, there was also concern expressed about compressed risk premiums if quantitative easing were to continue for too long,” analysts at BNP Paribas wrote in a note.
“Our economists think the FOMC is on track to continue tapering in measured steps on course for ending asset purchases by the end of this year,” they said. “Against this backdrop, we remain constructive on the USD.”
The Fed’s massive stimulus has been a major driver for risk assets over the past few years.
The dollar was steady at 104.89 yen, having risen to a one-week high of 105.135 in the previous session. Against the euro, it was little changed at $1.35775, having gained 0.3 percent on Wednesday.
The other major event on Thursday was the European Central Bank policy meeting. Analysts doubt it will do more than flag its readiness to act when needed, despite another surprising fall in euro zone inflation.
Among commodities, gold was up a tad at $1,227.05 per ounce, taking a pause after losing two-day in a row and touching a one-week low on Wednesday.
U.S. crude futures advanced 0.4 percent to $92.67 a barrel, rebounding from a five-week low hit overnight after data showed a large build in stockpiles at the U.S. benchmark delivery point.
(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Eric Meijer)