On Monday, Asian shares fell short of seven-month highs. Investors are awaiting inflation data from the United States, Japan, and Europe, which will help refine expectations for future interest rate hikes.
On Thursday, the core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, is set to be released. Analysts expect a 0.4% increase in the index.
Not long ago, investors were anticipating a 0.2% increase. However, recent readings on consumer and producer prices suggest a potential outcome of up to 0.5%, indicating a higher risk.
Markets have shifted the expected first Fed easing from May to June, currently pricing it at around 70%. Futures suggest slightly over three quarter-point cuts this year, down from five at the beginning of the month.
This week, at least ten Fed speakers are on the schedule, and they are expected to reiterate their cautious stance on interest rates. Additionally, Friday will see the release of the ISM manufacturing survey and China’s PMIs.
Despite a hawkish shift, Wall Street hit new highs last week, driven by Nvidia’s (NVDA.O) massive $277 billion market value increase.
“This may be a catalyst not only for the Street to get materially more bullish on the U.S. Equities but also to see a further decoupling of stocks and yields since the Mag7 are proving to deliver on earnings expectations irrespective of the interest rate environment,” wrote analysts at JPMorgan in a note, referring to the so-called “Magnificent Seven” top tech stocks.
On Monday, the S&P 500 and Nasdaq futures were both down 0.2%. EUROSTOXX 50 and FTSE futures both fell 0.2%.
After reaching seven-month highs with a 1.7% increase last week, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.3%.
Aided significantly by a rally in Chinese stocks, which surged nearly 10% in as many sessions on expectations of aggressive stimulus, previous gains took place. However, on Monday, blue chips (.CSI300) recorded a 0.5% decline.
Japan’s Nikkei (.N225), rose 0.3% after rising 1.6% last week to break its previous record high at the 40,000 mark.
INFLATION, ALL THE TIME
Japan’s consumer price data, due Tuesday, is expected to show a dip in core inflation to 1.8% in January, the lowest since March 2022.
A soft result would bolster the case against a tightening by the Bank of Japan. However, policymakers seem to be counting on rising wages to justify ending negative interest rates in March or April.
On Friday, inflation figures for the European Union are expected, with the core anticipated to drop to its lowest level since early 2022 at 2.9%. This decline brings the European Central Bank’s policy easing closer.
Markets are almost fully priced for a first cut in June, with April rated as a 36% chance.
Christine Lagarde, the head of the ECB, and the Bank of England’s chief economist will both speak later on Monday.
On Wednesday, the Reserve Bank of New Zealand (RBNZ) holds its first policy meeting of the year. There is a chance it will raise interest rates due to stubborn inflation. This is despite the fact that the country is likely to have entered a recession in the fourth quarter.
Treasury yields reached a three-month high last week as a result of the Fed’s pricing shift, though bonds recovered on Friday. Later in the session, the market will face a test as the Treasury sells $127 billion in two- and five-year notes. This will be followed by an additional $42 billion in a seven-year paper on Tuesday.
If Congress fails to reach an agreement on a borrowing extension by Friday, some US government agencies may be forced to close.
Globally, higher bond yields have exerted downward pressure on the yen. Consequently, it has dropped to multi-month lows against the euro and reached a nine-year low against the Australian and New Zealand dollars.
Early Monday, the euro was at 162.74 yen, just off its peak of 163.45, while the dollar was at 150.39 yen, just short of its peak of 150.88.
The single currency remained steady at $1.0820, having briefly reached $1.0889 last week.
In commodity markets, gold was slightly lower at $2,032 per ounce after rallying 1.4% last week.
Oil prices have fallen as concerns about demand, particularly from China, outweighed supply risks in the Middle East.
Brent fell 40 cents to $81.22 per barrel, while US crude dropped 37 cents to $76.12 per barrel.
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