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Title: Asia shares stay sluggish, dollar resumes retreat

Aug 01, 2022 01:50AM ET

By: AnalysisWatch

Asian shares were sluggish on Monday as disappointing Chinese economic data fed doubts Wall Street's rally could be sustained, while the dollar continued its retreat on the yen as speculators were forced out of suddenly unprofitable short positions.

South Korean activity weakened for the first time in two years, while Japan expanded at the slowest pace in 10 months.

That did not bode well for the raft of other PMIs due this week, including the influential U.S. ISM survey, while the July payrolls report on Friday should also show a further slowdown.

At the same time U.S. data out Friday showed stubbornly high inflation and wages growth, while central banks in the UK, Australia and India are all expected to hike again this week.

Chinese blue chips were flat, while Japan's Nikkei eked out a gain of 0.4% and South Korea 0.3%.

S&P 500 futures and Nasdaq futures both eased 0.3%. EUROSTOXX 50 futures added 0.1%, while FTSE futures fell by the same amount.

While U.S. corporate earnings have mostly beaten lowered forecasts, analysts at BofA cautioned that only 60% of the consumer discretionary sector had reported and it was under the most pressure given inflation concerns for consumers.

Bond markets have also been rallying hard, with U.S. 10-year yields falling 35 basis points last month for the biggest decline since the start of the pandemic. Yields were last at 2.660%, a long way from the June top of 3.498%.

The yield curve remains sharply inverted suggesting bond investors are more pessimistic on the economy than their equity brethren.

The biggest decline came against the yen where speculators had been massively short and found themselves squeezed out by the sudden turnaround. The dollar was down 0.6% at 132.43 yen, having shed a sharp 2.1% last week.

The dollar fared better on the euro, which has a European energy crisis to contend with, and made hardly any headway last week. The euro was last at $1.0236, and eyeing stiff resistance around $1.0278.

Jonas Goltermann, a senior markets economist at Capital Economics, was puzzled by the market's dovish reading of last week's 75-basis-point Fed hike.

U.S. crude eased $1.15 to $97.47 per barrel, while Brent lost 91 cents to $103.06.

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