Asian shares ease as Japan's economic growth stalls in Q2

Asian shares inched back from one-year peaks on Monday after Japanese data showed the world's third largest economy hit an air pocket last quarter, while oil prices held onto their recent gains as markets globally made a slow start to the week.

The Nikkei eased 0.3% as Japan's economic growth effectively stalled in the second quarter (Q2) on weak exports and business investment, underlining the need for more stimulus.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2% after a strong run.

The index has climbed almost 14% since late June when Britain's vote to leave the European Union (EU) triggered a new wave of global policy stimulus, led by aggressive action from the Bank of England (BoE).

All this easing has pushed rich-world bond yields dramatically lower and driven investors to seek higher returns in longer-term debt and in emerging markets.

Yields on British 10-year gilts have more than halved to all-time lows of 53 basis points, having been up at 1.39% just before the Brexit vote. 

That has pulled down rates right across Europe, with Spanish yields, for instance, falling over 60 basis points to break under 1% for the first time ever.

The plunge in returns on bonds has made equities look more attractive in comparison. The Dow, S&P 500 and Nasdaq all made record closing highs last week for the first time since 1999.

The pan-European STOXX 600 index dipped a touch on Friday but that was from a seven-week high.

"After a period of strong gains, shares are due to take a breather," said Shane Oliver, head of investment strategy at AMP Capital.

"But after the consolidation, we expect shares to trend higher over the next 12 months helped by okay valuations, very easy global monetary conditions and continuing moderate global economic growth." 

The same fundamentals should also underpin bonds.

"That said, the recent bond rally has taken yields to pathetic levels, leaving them at risk of a snapback," added Oliver.

Parsing the Fed

High on the US calendar this week are inflation figures for July and minutes of the last US Federal Reserve meeting which might offer more clues on the chance of a rate hike by year end. There are also five separate Fed speakers on the docket this week. 

Economic data on Friday showed US retail sales growth was unexpectedly flat in July as people cut back on buying clothes and other goods, while the producer price index fell 0.4% in July, the biggest drop in nearly a year.

The European Central Bank (ECB) releases minutes of its last meeting on Thursday, and should strike a dovish tone.

Investors have recently lengthened the odds on any Fed hike this year, with futures implying around a 46% chance of a move in December.

That in turn have weakened the bullish case for the US dollar and dragged it down against the euro, yen and a range of emerging market currencies.

Early on Monday, the dollar was flat at 101.30 yen and not far from important support around 100.80. The euro was steady at $1.1161 having held in a $1.1050 to $1.1230 range for last couple of weeks.

One outlier has been sterling, which has slipped steadily since the BoE's easing to stand at $1.2905 and ever closer to the post-Brexit trough at $1.2797.

In commodity markets, oil prices edged higher after boasting gains of 6% last week as Saudi Arabia's oil minister held out the chance of action to help stabilise the market.

Brent crude futures were up 15 cents on Monday at $47.12 a barrel, while US crude added 18 cents to $44.67.