Asia shares brace for U.S. inflation, rising euro due to ECB moves

U.S. inflation data release kept Asian shares subdued on Monday. The euro also rose against the Japanese currency as investors bet that the European Central Bank would raise interest rates this week.

Oil prices rose after Saudi Arabia raised its crude sales volumes in July. This indicated how tight the market is even after the Organization of the Petroleum Exporting Countries agreed to increase its output.

The pan-Asia index was little changed, while Japan's benchmark fell 0.3 percent. The S&P 500 was up 0.1 percent in U.S. futures, while the Nasdaq 100 was 0.1 percent.

Investors are awaiting the release of U.S. consumer price data for July on Friday. After inflation in the EU hit a record high last week, many expect the central bank to raise interest rates.

Economists expect the consumer price index to have risen by around 0.7 percent in May. While core inflation is expected to slow down to about 5.9 percent, the annual rate remains at approximately 8.3 percent.

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If the consumer price index comes in at a high number, it will add to expectations of an aggressive rate hike by the Federal Reserve. Markets have already priced in a rate hike in June and July.

Economists said that the data released last week suggested that the Fed is on track for a soft landing. According to Jonathan Millar, an analyst at Barclays, the strong job growth in May was a good sign that the central bank's efforts to cool the labor market are working. The steady gains in employment would help to allay concerns about the economy's potential recession.

ECB expected to stop buying bonds

Christine Lagarde, the head of the European Central Bank, is expected to confirm this week that the bank will stop buying bonds this month. However, the exact timing of the first-rate hike is not precise.

Money markets are pricing a rate hike of around 125 basis points (bps) by year-end and another 100 bps in October. According to analysts, some central bank members are still suggesting that the bank should raise rates by 25 to 50 basis points in July and September.

The euro was little changed at around $1.0722, recovering from its recent trough of $1.0348. The outlook for rates eventually turning positive has also helped the currency rise. However, it has been unable to break through the critical resistance level of $1.0786.

The euro reached a seven-year high against the Japanese currency at 140.35. It was up from last week's close of 2.9 percent. The dollar was also higher at around 130.84 against the Japanese currency.

On the other hand, the dollar index was little changed at 102.110. Gold was little changed at $1,852 an ounce. It had held a tight range in recent weeks.

Oil prices were supported by Saudi Arabia's decision to increase the costs for oil shipments to Asia. However, investors are still expecting that the Organization of Petroleum Exporting Countries (Opec) supply increases will not be enough to meet the demand.

According to analyst Vivek Dhar, only around a third of the promised increase in supply will come online over the next couple of months. This is disappointing as it falls short of the demand growth expectations. He also noted that the partial ban on Russian oil imports by the European Union could also affect the oil price.

Despite the lack of supply, oil prices could still gain on Monday, with Brent rising by $1.61 to $121.33 a barrel. The U.S. crude was also up by $1.56 to $120.43 a barrel.