China drags Asian shares even lower, dollar on back foot

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Asian shares were dragged lower by China on Friday amid little guidance from Wall Street which was closed for a holiday, while the dollar remained on the back foot as investors bet U.S. rates have peaked.

The yen was little changed after data showed that Japan’s core consumer inflation picked up again in October, although by less than expected, and factory activity shrank for a sixth straight month.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.4% but are headed for a weekly gain of 0.9%. It is up a whopping 7.1% so far in November as investors grew increasingly confident that the U.S. rates have peaked, with discussions shifting to the timing and speed of future rate cuts.

Japan’s markets returned from a holiday, with Nikkei climbing 1.0% to charge towards a 33-year high hit on Monday.

Chinese bluechips fell 0.3% while Hong Kong’s Hang Seng index tumbled 1.3%, reversing the previous day’s hefty gains. Chinese developers listed in Hong Kong lost 0.7%, after jumping 6.4% on Thursday on more support measures from Beijing to prop up the beleaguered industry.

“Since share markets rebounded so quickly, they became technically overbought, so it’s quite possible we go through a period of consolidation in markets,” said Shane Oliver, chief economist at AMP.

“You get the talk of the so-called Santa rally, but often times Santa rally doesn’t really occur in the last two weeks of December. So we could have a couple of weeks with the markets sort of just meandering around and lacking direction.”

Overnight, U.S. markets were closed for the Thanksgiving holiday. In Europe, slightly better than expected euro zone PMIs nudged the euro and shares higher and Sweden’s crown dropped as its central bank left rates on hold.

Minutes of the European Central Bank October policy meeting showed euro zone inflation falling as expected, or even a bit faster, but suggested policymakers needed to keep the possibility of an interest rate hike on the table.

Cash Treasuries fell a little as they resumed trading in Asia, with two-year Treasury yields up 2 basis points to 4.9338% and benchmark ten-year yields up 4 bps to 4.4568%.

In the currency markets, the dollar was on the back foot against its peers at 103.71, nearing a three month low of 103.17.

The sterling perched near a 2-1/2 month top at $1.2575, as strong results from a business survey led markets to push back bets on when the first rate cut from the Bank of England might come.

Oil prices were mixed after tumbling more than 1% on concerns over the delayed OPEC+ meeting. Brent crude futures were up 0.3% at $81.69 a barrel while U.S. West Texas Intermediate crude fell 0.6% to $76.65 a barrel.

Gold prices was flat at $1,992.75 per ounce.

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