Asian stocks edge lower, dollar firm as US inflation data looms

An index of Asian stocks eased back from more than two-week highs on Tuesday as traders squared positions heading into a key U.S. inflation report, although mainland Chinese shares and Japanese equities bucked the trend.

The dollar ticked higher against major peers as U.S. yields remained elevated amid increased confidence that the banking sector is not headed for a wider crisis.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), though, slipped 0.3%, erasing part of Monday's 0.9% rally.

Hong Kong's Hang Seng (.HSI) dropped 0.4%, while Australia's benchmark (.AXJO) lost 0.2% and South Korea's Kospi declined 0.4%.

Japan's Nikkei (.N225) jumped 0.8%, led by a surge for steelmakers after JFE Holdings (5411.T) forecast higher profit.

Mainland Chinese blue chips (.CSI300) gradually gained strength after an indifferent start to last be 0.5% higher.

Investors were mostly unmoved by Chinese data showing exports surged last month while imports eased.

U.S. S&P 500 E-mini futures signaled a slight decline at the reopen after the equity benchmark ended little changed on Monday.

Investors are keenly focused on Wednesday's U.S. consumer inflation report after Federal Reserve chair Jerome Powell said last week that policy decisions will be "driven by incoming data," while signaling a likely pause in the rate hiking cycle.

At the same time, Friday's robust payrolls report prompted investors to dial back expectations for the timing and size of the Fed's first rate cut.

Money markets currently expect two quarter point rate cuts by year-end, with a risk of a third.

Economists forecast a slight moderation in the headline inflation number to 5.5% annually for April, matching February's print, which was the lowest since the end of 2021.

"The surprise lies on the downside" for the inflation data, particularly the risk of a drop below 5%, said Tony Sycamore, a market analyst at IG markets.

"If we were to get a 4 print, I think you're going to get a great deal of fanfare, at least in the initial instance," with U.S. equities likely to push back to the top of recent ranges, he said.

At the same time, Sycamore cautioned against becoming too sanguine on the U.S. banking sector, after the market's mood was lifted by a Fed survey of lenders that suggested no imminent credit crunch.

U.S. Treasury Secretary Janet Yellen said overnight that regulators stand ready to mobilize the same tools used in recent bank rescues if necessary.

"It looks like they are trying to put out the fires for now, but whether they've managed to fully extinguish what's going on, I don't think that's going to happen to be honest," Sycamore said.

The debt ceiling standoff gives another reason for caution, with Yellen warning that failure to lift the debt limit would cause a huge hit to the U.S. economy and weaken the dollar as the world's reserve currency.

The dollar index , which measures the currency against six major peers, was little changed after earlier rising overnight from near the bottom of its trading range since the middle of last month.

The 10-year Treasury yield eased off a one-week high in Tokyo to last sit around 3.5%.

Nerves before the U.S. CPI data also ruled in commodity markets.

Spot gold prices eased slightly to around $2,020 per ounce.

Oil prices slipped, paring strong gains from the previous two sessions. Brent crude declined 31 cents to $76.70 and U.S. West Texas Intermediate (WTI) crude lost 23 cents to $72.92.