SYDNEY, Reuters -- Stocks slipped in Asia on Monday after a surprise drop in U.S. unemployment quashed any thought of a pivot on policy tightening ahead of a reading on inflation, which is expected to see core prices move higher again.
Geopolitical tensions added to the uncertainty as markets waited to see how the Kremlin might respond to the blast that hit Russia's only bridge to Crimea.
Holidays in Japan and South Korea made for thin trading in Asia, while the Treasury market is closed on Monday.
The futures of the Nikkei futures traded at 26,615 compared to Friday's cash close of 27,116.
Wall Street sank on Friday after an upbeat payrolls report seemed to seal the deal on another outsized rate hike from the Federal Reserve.
There is a more than 80% chance of the rates going up by 75 basis points next month, while the European Central Bank ECB is expected to match that and the Bank of England hike by at least 100 basis points.
Bruce Kasman, head of economic research at JPMorgan, believes that there are 75 basis points from all three central banks in the midst of the largest and most synchronized tightening of global monetary policy in more than three decades.
He said that the September CPI report should show a moderation in goods prices that is likely to be a harbinger of a broader slowing of core inflation. The Fed won't respond to a whisper of inflation moderation as long as labour markets shout tightness. Consumer price inflation is slowing a bit to an annual 8.1%, but the core measure is expected to accelerate to 6.5% from 6.3%. The U.S. CPI data will be released on Thursday at 8: 30 am ET 1230 GMT Minutes of the Fed's last policy meeting are out this week and are likely to sound hawkish given how many policy makers have lifted their dot forecasts for rates.
Wall Street is facing a testing time on corporate earnings with major banks kicking off the season on Friday, including JPMorgan, Citi, Wells Fargo and Morgan Stanley.
Consensus expects to see a 3% year-old EPS growth, 13% sales growth, and 75 bp margin contraction to 11.8%, analysts at Goldman Sachs said in a note. Excluding Energy, EPS is expected to fall by 3% and margins to contract by 132 bp. We expect fewer positive surprises in 3Q compared with 1 H 2022 and negative revisions to 4 Q and 2023 consensus estimates. The strength of the dollar is going to cause offshore earnings to be a bone of contention.
The dollar index has risen to 112.75 for the past three sessions. It stood at 145.34 yen but had shied away from the recent 24 year top of 145.90 for fear of Japanese intervention. The euro was close to $0.9734 after retreated from a high of $0.9999 last week.
The pound fell to a little less than $1.1089, with traders on edge as the Bank of England ends its emergency bond buying campaign on Friday.
Yields on 10 year bonds are still up at 4.237% and a long way from the 3.31% level held before the British mini-budget sent the market into a tailspin. The rise in the dollar and yields has been a burden for gold, which was hovering at $1,694 an ounce. After a deal on supply reductions by OPEC O R Brent firmed 12 cents to $98.04 a barrel, GOL Oil prices went up by 11%, while U.S. crude increased 21 cents to $91.85 per barrel.