Asian shares mostly rise ahead of key US inflation report

TOKYO (AP) — Asian shares mostly rose Tuesday, boosted by a rally on Wall Street, as investors waited for U.S. consumer price data due out later in the day.

“Sentiments are largely tracking the positive handover from Wall Street overnight, although much is still up in the air,” Yeap Jun Rong, a market analyst at IG, said in a commentary.

In a mixed sign of Japan’s shaky recovery, government data showed the world’s third largest economy grew at an annual pace of 0.6% in October-December, as restrictions related to the coronavirus pandemic eased, both abroad and in Japan. Tourism recovered, as did local travel, and exports grew, the Cabinet Office reported.

Japan’s benchmark Nikkei 225 gained 0.6% in morning trading to 27,579.73. Australia’s S&P/ASX 200 edged up 0.2% to 7,435.90. South Korea’s Kospi added 0.8% to 2,471.38. Hong Kong’s Hang Seng lost 0.4% to 21,083.61, while the Shanghai Composite was virtually unchanged at 3,282.36.

Shares rose on Wall Street as traders made their final moves ahead of a report that could show whether inflation is cooling in the right way or setting the market up for worse pain. The S&P 500 climbed 1.1% in anticipation of Tuesday’s report on inflation at the consumer level across the country.

The Dow Jones Industrial Average gained 1.1% to 34,245.93, while the Nasdaq composite rose 1.5% to 11,891.79. The S&P 500 rose 46.83 points to 4,137.29.

Stocks were coming off their worst week in nearly two months, the latest stumble for a market that has struggled for more than a year on worries about high inflation.

The Federal Reserve has aggressively hiked rates to their highest level since 2007 to drive down the worst inflation in generations. High rates can stamp out inflation, but they do so at the risk of sending the economy into a recession and they drag prices for some investments.

Economists expect Tuesday’s report to show inflation slowed to 6.2% in January. That would be down from 6.5% a month before and from a peak of more than 9% in the summer. Perhaps more important than the overall number is what the data show specifically about prices for services outside of housing, such as haircuts or airfares. Inflation has remained stubbornly high there, when it’s started to come down in other areas.

Everyone agrees that inflation is heading in the right direction. The question is how quickly and steadily it will come down to the Fed’s target of 2%. The central bank has been consistently saying it plans to keep rates higher for longer to ensure the job is done on inflation.

Yields were mixed Monday ahead of the inflation report. The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, dipped to 3.70% from 3.75% late Friday. The two-year yield, which tends to move more on expectations for the Fed, was at 4.54% and close to its highest since November.

All the worries about inflation and rates are happening against the backdrop of a decidedly lackluster earnings reporting season. Companies in the S&P 500 are on track to report a nearly 5% drop in earnings for the final three months of 2022, compared with a year earlier, according to FactSet.

By the count of strategists at Credit Suisse, this is shaping up to be the worst earnings reporting season outside of a recession in 24 years.

Pessimism is also building about earnings for the first three months of 2023.

A continued decline in corporate earnings is one reason strategists at Morgan Stanley are cautious about the rally stocks have made since the start of the year, even if they gave back some of it last week. The S&P 500 is up 7.8% for 2023 so far, though it remains stuck in its “bear market” after falling more than 20% from its high last year.

“Price action is not reflective of the deteriorating fundamentals or the fact that the Fed is hiking during an earnings recession — drivers that should ultimately determine the lows for this bear market later this spring,” the strategists led by Michael Wilson wrote in a report. “Risk-reward is as poor as it’s been in our view.”

The bulk of earnings reports have already come in for this season, with big utility companies and retailers among the companies toward the tail end. This week will include reports from Southern Co., Coca-Cola and Kraft Heinz.

In energy trading, benchmark U.S. crude fell $1.03 to $79.11 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international pricing standard, fell 81 cents to $95.80 a barrel.

In currency trading, the U.S. dollar inched down to 132.07 Japanese yen from 132.42 yen. The euro cost $1.0736, up from $1.0726.

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AP Business Writer Stan Choe contributed to this report.

Yuri Kageyama is on Twitter https://twitter.com/yurikageyama

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