A drop in Chinese consumer prices added to long-running worries about the world's number two economy
A drop in Chinese consumer prices added to long-running worries about the world's number two economy AFP

Asian markets diverged Monday as investors awaited key US data and a Federal Reserve policy decision after labour figures last week suggested the US central bank was on course to deliver a soft landing for the economy while reining in inflation.

A forecast-beating read on jobs on Friday -- and a pick-up in consumer sentiment -- tempered expectations for interest rate cuts in the new year but were not enough to jolt confidence that decision-makers have finished with their tightening cycle.

Readings on consumer prices and retail sales are due this week, as is the Fed's meeting and boss Jerome Powell's statement, which will be parsed for indications of officials' plans.

Investors will also be keeping an eye on decisions by the European Central Bank and Bank of England this week.

"The run of data that preceded Friday's non-farm payrolls data has mostly been softer, and equity markets appeared willing to overlook NFP as an outlier," said IG Australia's Tony Sycamore.

"However, the equity market is unlikely to be so forgiving if it gets another fright this week from either CPI, the (policy) meeting, or retail sales," he said, referring to the consumer price index.

Stephen Innes at SPI Asset Management said the Fed was walking a fine line.

"On the one hand, there's the concern that they might act too slowly to ease policy, leading to an economic downturn under the strain of higher interest rates, resulting in significant job losses for millions of people," he wrote.

"On the other hand, there's the fear of easing too early, which could result in inflation settling above three percent."

He added: "Hopefully, by the week's end, investors will have some clarity on the Federal Reserve 2024 playbook."

All three main indexes on Wall Street rose Friday but Asian traders struggled to extend the rally, with sentiment jarred by figures showing China slipped further into deflation last month as leaders struggle to kickstart the stuttering economy.

Consumer prices fell at their steepest pace in three years, data showed, fuelling fresh calls for the government to unveil more economic support measures.

"China's deflation situation is deepening with the triple whammy from domestic food prices, international oil price corrections and weak domestic demand," said economists at Citigroup.

"There is no time for policy hesitation to prevent a vicious loop between deflation, confidence and activities."

Still, Shanghai chalked up gains, along with Tokyo, Sydney, Seoul, Taipei and Mumbai, but Hong Kong, Singapore, Wellington, Manila and Jakarta were in retreat.

The dollar extended Friday's advance against the yen, having fallen sharply to a four-month low in the middle of last week on bets the Bank of Japan is about to shift away from its ultra-loose monetary policy.

Tokyo - Nikkei 225: UP 1.5 percent at 32,791.80 (close)

Hong Kong - Hang Seng Index: DOWN 1.1 percent at 16,156.22

Shanghai - Composite: UP 0.7 percent at 2,991.44 (close)

Dollar/yen: UP at 145.40 yen from 144.97 yen on Friday

Euro/dollar: UP at $1.0769 from $1.0767

Pound/dollar: DOWN at $1.2545 from $1.2550

Euro/pound: UP at 85.83 pence from 85.76 pence

West Texas Intermediate: UP 0.7 percent at $71.76 per barrel

Brent North Sea crude: UP 0.8 percent at $76.43 per barrel

New York - Dow: UP 0.4 percent at 36,247.87 (close)

London - FTSE 100: UP 0.5 percent at 7,554.47 (close)