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GLOBAL MARKETS-Shares on guard for U.S. inflation, earnings tests

In This Article:

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

* Nikkei up 1.5%, S&P 500 futures off 0.4%

* Dollar tops 137 yen before U.S. CPI, inflation expectations

* Banks kick off earnings season from Thursday

By Wayne Cole

SYDNEY, July 11 (Reuters) - Asian shares were mostly under water on Monday as investors braced for a U.S. inflation report that could force another super-sized hike in interest rates, and the start of an earnings season in which profits could be under pressure.

An upbeat U.S. June payrolls report already has the market wagering heavily on a rise of 75 basis points from the Federal Reserve, sending bond yields and the dollar higher.

Underlining the global nature of the inflation challenge, central banks in Canada and New Zealand are expected to tighten further this week.

While Wall Street did eke out some gains last week, the market mood will be tested by earnings from JPMorgan and Morgan Stanley on Thursday, with Citigroup and Wells Fargo the day after.

"Consensus expects 2Q S&P 500 EPS (earnings per share) growth of just +6% year/year," says Goldman Sachs analyst David J. Kostin. "While firms will likely clear this low bar, we expect cautious commentary will prompt cuts to forward estimates."

If the economy does manage to dodge recession, Kostin sees EPS growth of 8% in 2022 and 6% in 2023, with the S&P 500 index rising to 4,300. In a moderate recession, EPS could fall by 11%.

On Monday, S&P 500 futures were down 0.4% and Nasdaq futures off 0.5%. EUROSTOXX 50 futures fell 0.6% and FTSE futures 0.7%.

Chinese blue chips lost 1.2% after Shanghai discovered a COVID-19 case involving a new subvariant, Omicron BA.5.2.1.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.7%. Going the other way, South Korea firmed 0.1% and Japan's Nikkei added 1.6%.

Japan's conservative coalition government was projected to have increased its majority in upper house elections on Sunday, two days after the assassination of former prime minister Shinzo Abe.

A major hurdle will be Wednesday's U.S. consumer price report, in which markets see headline inflation accelerating further to 8.8% but a slight slowdown in the core measure to 5.8%.

An early reading on consumer inflation expectations this week will also have the close attention of the Fed.

"Unexpected weakness in these releases will be required to dislodge expectations for a 75bps July 27 Fed rate rise, which lifted from about 71bps to 74bps post the payrolls report," said Ray Attrill head of FX strategy at NAB.

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