GLOBAL MARKETS-Asia shares brace for U.S. inflation, euro up on ECB bets

* Asian stock markets : https://tmsnrt.rs/2zpUAr4

* Nikkei dips 0.3%, S&P 500 futures shade firmer

* Euro hits 7-yr high on yen ahead of ECB meeting

* U.S. CPI report to test market thinking on Fed hikes

* Oil jumps after Saudi Arabia raises prices

By Wayne Cole

SYDNEY, June 6 (Reuters) – Asian shares made a muted start
on Monday as caution gripped ahead of a critical reading on U.S.
inflation, while the euro gained on the yen amid wagers the
European Central Bank will take a major step toward policy
tightening this week.

Oil prices jumped in early trade after Saudi Arabia raised
prices sharply for its crude sales in July, an indicator of how
tight supply is even after OPEC+ agreed to accelerate its output
increases over the next two months.

MSCI’s broadest index of Asia-Pacific shares outside Japan
eased
0.3%. S&P 500 futures and Nasdaq futures both
edged up 0.1%.

Markets will be on tenterhooks for the U.S. consumer price
report on Friday, especially after EU inflation shocked many
with a record high last week.

Forecasts are for a steep rise of 0.7% in May, though the
annual pace is seen holding at 8.3% while core inflation is seen
slowing a little to 5.9%.

A high number would only add to expectations of aggressive
tightening by the Federal Reserve with markets already priced
for half-point hikes in June and July and almost 200 basis
points by the end of the year.

Some analysts thought Friday’s upbeat payrolls report
suggested the Fed was on track for a soft landing.

“May’s numbers came in about as good as the Fed could
expect,” said Jonathan Millar, an economist at Barclays.

“It’s a good sign that the Fed’s plans to cool the labour
market are playing out favourably so far, with solid gains
in employment continuing to generate steady income gains that
will help allay recession worries, for the time being.”

NOT SO NEGATIVE

The European Central Bank meets on Thursday and President
Christine Lagarde is considered certain to confirm an end to
bond buying this month and a first rate hike in July, though the
jury is out on whether that will be 25 or 50 basis points.

Money markets are priced for 125 bps of hikes by year-end,
and 100 bps as soon as October.

“Recent communication by ECB officials have looked to 25bp
increases at July and September to exit negative rates by the
end of Q3, though with some members preferring to leave the door
to larger 50bp hikes open,” said analyst at NAB. “Lagarde’s
post-meeting press conference will be closely watched.”

The prospect of rates turning positive this year has helped
the euro steady at $1.0722 , some way from its recent
trough of $1.0348, though it has struggled to clear resistance
around $1.0786.

The euro also made a seven-year peak on the yen at 140.35
, after climbing 2.9% last week, while the dollar was
up at 130.84 yen having also gained 2.9% last week.

Against a basket of currencies, the dollar stood at 102.110
after firming 0.4% last week.

In commodity markets, gold was stuck at $1,852 an ounce
having held to a tight range for the past couple of
weeks. [GOL/]

Oil prices got an added lift after Saudi Arabia set higher
price for shipments to Asia, while investors are wagering supply
increases panned by OPEC will not be enough to meet demand
especially as China is easing its lockdowns. [O/R]

“Perhaps only a third to half of what OPEC+ has promised
will come online over the next two months,” said Vivek Dhar, a
mining and energy analyst at CBA.

“While that increase is sorely needed, it falls short of
demand growth expectations, especially with EU’s partial ban on
Russian oil imports also factored in. We see upside risks to our
near term Brent oil price forecast of $US110/bbl.”

Indeed, Brent is already well past that adding
$1.61 on Monday to reach $121.33 a barrel. U.S. crude
rose another $1.56 to $120.43 per barrel.

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Asia-Pacific valuations

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(Reporting by Wayne Cole; Editing by Sam Holmes)
(([email protected]; 612 9171 7144; Reuters
Messaging: [email protected]))

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Keywords: GLOBAL MARKETS/ (WRAPUP 1, PIX)

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