Asian shares turned mixed on Monday after China's central bank trimmed key lending rates as a raft of economic data missed forecasts, underlining the need for more stimulus to support the world's second largest economy.
Retail sales and industrial output both rose by less than expected in July, adding to a disappointing reading on new bank lending.
The cut in rates helped cushion the blow a little and Chinese blue chips .CSI300 edged up 0.1%, while the yuan and bond yields slipped.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was flat, having bounced 0.9% last week.
Japan's Nikkei .N225 rose 1.0% even though data showed the economy grew an annualised 2.2% in the second quarter, a touch under estimates.
Investors remain anxious to see if Wall Street can sustain its rally as hopes that US inflation has peaked will be tested by likely hawkish commentary from the Federal Reserve this week.
"The FOMC Minutes on Wednesday should reinforce the hawkish tones from recent Fed speakers of being nowhere near being done on rates and inflation," warned Tapas Strickland, a director of economics at NAB.
Markets are still implying around a 50% chance the Fed will hike by 75 basis points in September and that rates will rise to around 3.50-3.75% by the end of the year.
Hopes for a soft economic landing will also get a health check from US retail sales data that is expected to show a sharp slowdown in spending in July.
There is also a risk earnings from major retailers, including Walmart WMT.N and Target TGT.N, could be laced with warnings about a downturn in demand.
Also read: Morning Bid: Asia's economic spotlight shines on giants China, Japan
Geopolitical risks remain high with a delegation of US lawmakers in Taiwan for a two-day trip.
EUROSTOXX 50 futures STXEc1 added 0.5% and FTSE futures FFIc1 rose 0.4%. S&P 500 futures ESc1 and Nasdaq futures NQc1 were both down around 0.2% after last week's gains.
The S&P index is almost 17% above its mid-June lows and only 11% from all-time highs amid bets the worst of inflation is past, at least in the United States.
"The leading indicators we observe provide support for moderation with easing supply pressures, weakening demand, collapsing money supply, declining prices and falling expectations," said analysts at BofA.
"Key components of headline inflation, including food and energy are also at an inflection point. Both Wall Street and Main Street now expect inflation to moderate."
The bond market still seems to doubt the Fed can manufacture a soft landing, with the yield curve still deeply inverted. Two-year yields US2YT=RR at 3.26% are 42 basis points above those for 10-year notes US10YT=RR.
Those yields have underpinned the US dollar, though it did slip 0.8% against a basket of currencies =USD last week as risk sentiment improved.
The euro was holding at $1.0249 EUR=EBS, having bounced 0.8% last week, though it shied away from resistance around $1.0368. Against the yen, the dollar steadied at 133.33 JPY=EBS after losing 1% last week.
"Our sense remains that the dollar rally will resume before too long," argued Jonas Goltermann, a senior economist at Capital Economics.
"It will take a lot more good news on inflation before the Fed changes tack. The minutes from the last FOMC meeting and the Jackson Hole conference may well push back further against the notion that the Fed is 'pivoting'."
The pullback in the dollar provided something of a reprieve for gold which was up at $1,797 an ounce XAU=, having gained 1% last week.
Oil prices eased as China's disappointing data added to worries about global demand for fuel. Traders were also cautious in case progress was made on a possible European-brokered nuclear deal with Iran.
Brent LCOc1 slipped 45 cents to $97.70, while US crude CLc1 fell 48 cents to $91.61 per barrel.