Asian share markets turned mixed on Monday as caution grew ahead of Chinese data, though sentiment stayed supported by hopes the US economy would be able to handle an expected first increase in interest rates in almost a decade. Oil prices were near their lowest since 2009 in the wake of the Organization of the Petroleum Exporting Countries’ decision to keep production high despite depressed demand. Brent was last down 27 cents at $42.73 a barrel, while US crude lost 37 cents to $39.60.

Equity investors were wary ahead of a bevy of Chinese data which are expected to show a still sluggish economy. Trade figures are due on Tuesday, followed by inflation on Wednesday and industrial output and retail sales on Saturday. MSCI's broadest index of Asia-Pacific shares outside Japan managed only a 0.1 percent gain, with Australia and South Korea both going flat. Japan's Nikkei was the best performer thanks to a soft yen and added 0.99 percent. In China, the CSI300 index of the largest listed companies in Shanghai and Shenzhen dithered either side of zero.

Financial spreadbetters expected Britain’s FTSE 100 to open up 0.6 per cent, Germany’s DAX 0.9 per cent and France’s CAC anywhere from 0.8 to 1.4 per cent higher. On Wall Street, the Dow had rallied 2.12 per cent on Friday, while the S&P 500 gained 2.05 per cent and the Nasdaq 2.08 per cent. The gains followed a US payrolls report that showed employers hired 211,000 people in November while even greater numbers joined the workforce.

All but one of the primary dealers polled by Reuters expect the Federal Reserve will hike rates next week, while futures markets imply around an 80 per cent probability. Yet extreme market positioning and a lack of liquidity led to some counterintuitive moves, with the dollar ending the week lower while Treasury yields actually fell.

“So while the Fed’s decision is shaping as somewhat of a done deal, how the market reacts to a Fed hike still contains an element of uncertainty,” said David Cannington, a senior economist at ANZ. “The logical reaction - a stronger US dollar and modestly higher US interest rates - may not be what transpires, at least not initially.”

Indeed, currency markets were still reeling from last week’s savage rally in the euro which saw its biggest one-day rise in more than six years. So swift was the move that dealers suspect many investors were unable to exit their short positions and were now hoping desperately for a pullback to sell into. Yet that in turn gave other speculators reason to keep the euro from falling, perhaps why the single currency suffered only limited losses on the U.S. jobs report. On Monday, the euro was holding at $1.0862, off last week’s $1.0980 peak but still far above the $1.0538 low. The dollar fared better on the yen, up at 123.26 from as low as 122.44 on Friday. Against a basket of major currencies, the dollar was a shade firmer at 98.432.

Reuters