SINGAPORE: Asian shares fell on Thursday and the dollar firmed slightly as investors pondered U.S. data that showed progress in slowing inflation had stalled even as the economy remained resilient, while rising geopolitical worries kept risk sentiment in check.
With the U.S. Thanksgiving holiday likely to keep trading thin for the rest of the week, traders remained hesitant about placing major bets.
MSCI's broadest index of Asia-Pacific shares outside Japan was 0.4 per cent lower, with Japan's Nikkei up 0.48 per cent.
Sentiment remained frail as investors wrestled with possibility of a tariff war sparked by U.S. President-elect Donald Trump's policies and reports of explosions in Ukrainian cities.
Futures indicate European bourses were set for a higher open, with Eurostoxx 50 futures up 0.57 per cent, German DAX futures climbing 0.38% and FTSE futures 0.17 per cent firmer.
The focus during European session will be on the French markets as investors fret over the fate of the new government and its budget.
The blue-chip CAC 40 sank to its lowest level since early August on Wednesday.
Data on Wednesday showed U.S. consumer spending increased slightly more than markets expected in October but progress on lowering the rate of inflation appears to have stalled in recent months.
The lack of success in bringing inflation back to the Fed's 2 per cent target, together with the prospect of higher tariffs on imported goods, could narrow the scope for interest rate cuts next year.
While the Fed is still widely expected to deliver a third rate reduction in December, minutes of the Federal Open Market Committee's Nov. 6-7 policy meeting published on Tuesday showed officials appeared divided over how much farther they may need to cut rates.
"We continue to expect the FOMC to cut the Funds rate by 25 basis point at its December meeting," said economist Kristina Clifton at the Commonwealth Bank of Australia.
"However, another solid monthly core inflation for November will challenge the FOMC's view that inflation is trending down to 2 per cent/year. Doubts around inflation converging sustainably to target would reduce market expectations for a December cut."
Traders are pricing in 65% chance of the Fed cutting rates next month and are anticipating 75 basis points of easing by the end of 2025, LSEG data showed.
Macquarie strategists said the inflation outlook has become cloudier, with threatened tariff hikes by the incoming Trump administration having the potential to rekindle price pressures.
"While tariffs introduced in 2018/2019 didn't ultimately prove inflationary, we caution on extrapolating to the current circumstances," they said in a client note.
In a surprise move, South Korea's central bank cut benchmark interest rates for a second consecutive meeting on Thursday as the economy stalled and inflation slowed more than policymakers predicted. The won weakened after the decision.
The yen was 0.29 per cent lower at 151.53 per dollar but remained close to the one-month high it touched in the previous session. The Asian currency is headed for its strongest weekly performance since early September on growing expectations of a rate hike from the Bank of Japan next month.
The euro was slightly weaker after rising 0.7 per cent in the previous session as investors pulled back on rate cut bets in the wake of European Central Bank board member Isabel Schnabel saying that cuts should be gradual and move to neutral, not accommodative, territory.
That left the dollar index, which measures the U.S. currency against six rivals, 0.11 per cent higher at 106.23 on the day after dropping 0.7 per cent in the previous session.
In commodities markets, oil prices were steady as worries over Middle East supply disruptions eased after a ceasefire deal between Israel and Hezbollah.
Brent crude futures were little changed at US$72.8 a barrel. U.S. West Texas Intermediate crude was steady at US$68.7.
Spot gold was flat at US$2,634 per ounce but on course for a near 4 per cent drop in November, its weakest monthly performance in over a year.