Asian markets struggle as easing inflation fails to boost optimism

Asian markets fluctuated Friday as traders weighed a range of issues including US debt ceiling hopes, high-level talks between Washington and Beijing, banking sector uncertainty and more signs of a slowing economy.

Investors hoping the Federal Reserve will finally take a breather from its long-running campaign of interest rate hikes have been left feeling a little more confident this week after data showed inflation on both a consumer and wholesale level continued to ease in April.

Their hopes were given a further boost Thursday by news that jobless claims last week hit their highest since October 2021, suggesting the labour market was showing some slack.

The Fed has long said it needed to see a softening in employment as well as a drop in inflation before it could consider ending its rate hike drive and look at a potential cut in borrowing costs.

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"US economic data overnight continued the theme of tentative signs of a softening labour market and room for optimism about the inflation outlook," said National Australia Bank's Taylor Nugent.

"Caution on one week’s claims number is always well advised, but the incremental signal looks to be a more compelling trend higher."

There was also some positive news out of Washington that US National Security Advisor Jake Sullivan and top Chinese diplomat Wang Yi met in Vienna this week, as the superpowers seek to temper tensions over a number of issues, particularly Taiwan.

The eight hours of talks over Wednesday and Thursday also covered Russia's invasion of Ukraine and capped an unofficial pause in high-level contacts since the United States shot down a Chinese surveillance balloon earlier in the year.

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Both sides described the face-to-face as "candid, substantive and constructive".

"The risk appetite of the stock market is likely to be lifted by the news of the US-China meeting," Alvin Ngan, of Zhongtai Financial International, said.

"Overseas-listed Chinese stocks and Chinese internet sector, of which foreign investors have relatively high exposure, are likely to get a boost."

US-listed Chinese firms performed well in New York, with tech firms also helped by a strong earnings report from ecommerce giant JD.com. And the rally continued for the sector in Hong Kong, with JD.com up more than seven percent and rival Alibaba almost three percent higher.

The gains lifted the city's Hang Seng Index, while there were also gains in Tokyo and Wellington.

But Shanghai, Sydney, Seoul, Singapore and Taipei were in negative territory.

The losses followed another tepid lead from Wall Street, where the Dow and S&P 500 ended down as fears over the banking sector continued to weigh.

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US regional lenders came under fresh pressure after PacWest noted in a filing that media reports that it was exploring strategic options had sparked a surge in withdrawals from worried customers.

It said total deposits dived almost 17 percent in the first quarter, when the finance industry was rocked by the collapse of three local banks.

PacWest dived more than a fifth, while several other regional lenders including KeyCorp, Zions Bancorporation and Western Alliance Bancorporation took a hit.

Eyes are also on Washington, where much-anticipated debt ceiling talks between President Joe Biden and Republican leaders were postponed until next week, with sources saying staff-level discussions were progressing.

While Democrats and Republicans blamed each other for the impasse on hiking the US borrowing limit, there is a hope a deal can be hammered out that will allow the country to pay its bills.

JPMorgan chief executive Jamie Dimon warned Thursday that failure to reach an agreement would be "potentially catastrophic".

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"People should remember the American financial system is the foundation to the global economic system," he told Bloomberg Television.

That came after the International Monetary Fund also said there would be "very serious repercussions not only for the US but also for the global economy should there be a US debt default".

Key figures around 0230 GMT

Tokyo - Nikkei 225: UP 0.8 percent at 29,359.43 (break)

Hong Kong - Hang Seng Index: UP 0.1 percent at 19,769.70

Shanghai - Composite: DOWN 0.3 percent at 3,300.11

Euro/dollar: UP at $1.0924 from $1.0918 on Thursday

Pound/dollar: UP at $1.2516 from $1.2514

Dollar/yen: UP at 134.64 yen from 134.55 yen

Euro/pound: UP at 87.28 pence from 87.22 pence

West Texas Intermediate: DOWN 0.2 percent at $70.73 per barrel

Brent North Sea crude: DOWN 0.4 percent at $74.71 per barrel

New York - Dow: DOWN 0.7 percent at 33,309.84 (close)

London - FTSE 100: DOWN 0.1 percent at 7,730.58 (close)

Source: AFP