SINGAPORE – Asian stocks inched lower while the dollar held firm on Thursday as a looming interest rate hike in Europe and uncertainty over the westward supply of Russian gas kept traders on edge.
Wall Street indexes rallied overnight but even better-than-expected results from Tesla after hours couldn't carry the positive mood into the Asia session.
Nasdaq 100 futures fell 0.3 percent and S&P 500 futures fell 0.2 percent. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 percent and Japan's Nikkei fell 0.1 percent.
Market focus is on the resumption of gas flows along the biggest pipeline from Russia to Germany. A planned 10-day outage is set to end at 0400 GMT. If flow isn't resumed, or is lacklustre, it will stoke worries about winter supplies.
Two sources familiar with the plans of Russia's monopoly gas exporter, Gazprom, told Reuters flows were likely to restart at pre-maintenance levels of 40 percent of capacity – probably be enough to calm markets for now, but without resolving the matter.
The European Central Bank also meets on Thursday to begin Europe's rate-hike cycle. Markets are hedging bets on a hike of either 25 basis points or 50 bps, with the latter perhaps able to support a euro that has slipped below $1 this month.
"They need to be raising rates to deal with the way inflation is embedded," said George Boubouras, head of research at K2 Asset Management in Melbourne.
"But the dilemma they've got is that the lack of energy security planning has regions of the European Union in a very difficult position…one can only assume that you've got minimal upside and large downside risks to the European economy."
The euro wavered overnight and bought $1.0191 early in the Asia session. Traders also await details of an ECB plan to steady bond spreads in Europe by buying extra debt from periphery countries to keep a lid on yields.
The Bank of Japan left monetary policy unchanged on Thursday, as expected, and raised its inflation forecasts a little bit. The yen held steady at 138.37 per dollar.
China's yuan was under pressure in morning trade at 6.7700 to the dollar. Against other currencies the greenback steadied after dipping earlier in the week. The Australian dollar bought $0.6890.
Sterling, at $1.1983, didn't get much of a bounce from British inflation zooming to a 40-year high, even though it stoked bets on rate rises. Traders have a wary eye on the race to replace Boris Johnson as prime minister.
Beyond the ECB, investors have scaled back bets on a 100 bps rate hike from the Federal Reserve next week, with a 75 bps hike now seen most likely. But the retreat has come in concert with a deepening of economic growth worries.
The benchmark 10-year Treasury yield held at 3.0172 percent in Asia, below the 2-year yield of 3.2293 percent, a market signal that often presages a recession.