SYDNEY, Jan 17 — Asian share markets got off to a cautious start today as the US earnings season loomed large and a slew of Chinese economic data were expected to show the deadening effect of coronavirus restrictions on activity.

A holiday in the United States made for thin trading, but that did not stop Brent crude from extending its bull run toward last year’s peak of US$86.70 (RM362.97) a barrel.

MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed, while Japan’s Nikkei bounced 0.8 per cent after losing 1.2 per cent last week

S&P 500 futures were flat, while Nasdaq futures slipped 0.1 per cent.

The main feature of the market recently has been a rotation into value stocks and away from growth, particularly technology. The S&P 500 information technology sector, which accounts for nearly 29 per cent of the index, has shed 5.5 per cent this year.

With valuations still high, earnings will have to be strong to stop further losses. Overall S&P 500 earnings are expected to climb 23.1 per cent this season, according to Refinitiv IBES, while the tech sector is seen up by 15.6 per cent.

Companies reporting this week include Goldman Sachs, BofA, Morgan Stanley and Netflix.

The market will be spared speeches from Federal Reserve officials this week ahead of their January 25-26 policy meeting, but there has been more than enough hawkish comments to see the market almost fully price in a first rate hike for March.

There was also talk the Fed will start trimming its balance sheet earlier than previously thought, draining some of the excess liquidity from world markets.

Yields on cash 10-year Treasuries climbed to their highest in a year at 1.8 per cent, while futures implied yield of 1.83 per cent early today.

“The implications of quantitative tightening continue to occupy markets as an earlier Fed balance sheet runoff looms,” noted analysts at Barclays.

“Meanwhile, new Covid lockdowns in China could re-aggravate global supply bottlenecks, while in both Europe and the US the near-term growth outlook is now weaker and the 2022 inflation profiles higher.”

Data out of China due today are expected to show retail sales and industrial output slowed further in December. The economy is forecast to have grown 1.1 per cent in the fourth quarter, though the annual pace is seen slowing to 3.6 per cent from 4.9 per cent.

Beware the BOJ

A Bank of Japan (BOJ) policy meeting this week will bear watching given talk it will revise up its outlook for growth and inflation, while sources told Reuters policy makers were debating how soon they could start telegraphing an eventual interest rate hike.

While a move is unlikely this year, financial markets may be under-estimating its readiness to gradually phase out its once-radical stimulus programme.

This was one reason the yen has rallied, with the dollar slipping 1.2 per cent last week to last stand at 114.29 but still well above major chart support at 112.52.

The euro also gained 0.5 per cent last week as the dollar eased broadly and was last changing hands at US$1.1408. The dollar index was a shade firmer at 95.231, after touching a 10-week trough at 94.626 on Friday.

“We continue to think that the greenback will strengthen again before long, as we expect strong cyclical price pressures in the US to mean the Fed tightens by more and for longer than investors currently discount,” argued Joseph Marlow, an economist at Capital Economics.

They see Fed rates topping 2.5 per cent while the market has priced in a peak around 1.75-2.0 per cent..

The risk of higher rates kept non-yielding gold restrained at US$1,817 an ounce, while industrial and energy resources have benefited from resilient demand and limited supplies.

Oil prices have climbed for four weeks straight and such is demand that physical barrels of oil are changing hands at near record high premiums.

Early today, Brent had added another 51 cents to US$86.57 a barrel and was approaching the 2021 top of US$86.70 and the 2018 peak at US$86.74. A break there, would take it to heights last visited in 2014.

US crude also firmed 75 cents to US$84.57 per barrel. — Reuters