Asian shares drifted lower on Monday, as the week is packed with a quintet of rich world central bank meetings and data on US inflation, which could determine the market’s hopes for an early and rapid round of rate cuts next year. An upbeat payrolls report has already seen investors scale back their expectations for a March cut by the Federal Reserve, although May remains priced at a 76% chance. This week, the Fed is expected to hold rates at 5.25-5.50%, putting the focus on the so-called dot plots for rates and Chair Jerome Powell’s press conference.
On Tuesday, the consumer price report for November will also influence the outlook, with analysts forecasting an unchanged headline rate and a 0.3% rise in the core. John Briggs, global head of strategy at NatWest Markets, said, “We look for another Fed-friendly CPI report but, barring surprises, anticipate the policy statement to signal that economic conditions have not changed enough for officials to drop their tightening bias just yet. We think Powell will leave the option of a possible hike on the table, but the hurdle seems quite high for the Fed to follow through.
We also expect the ECB to cut early while the BoE will continue to push back against market pricing of cuts in the first half of 2024.” The European Central Bank, Bank of England (BoE), Norges Bank, and the Swiss National Bank (SNB) all meet on Thursday, with Norway the only one considered a possible hiker. There is also a risk that the SNB may toy with renewed intervention to weaken the franc. With so much riding on the outcomes, investors were understandably cautious, and MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.65%. Japan’s Nikkei (.N225) bounced 1.6% after shedding 3.4% last week amid speculation of an end to super-easy monetary policy. Chinese blue chips (.CSI300) slid 0.9% and touched five-year lows after data showed consumer prices fell 0.5% in November, the sharpest drop since late 2020.
Investors were cautious due to the outcomes of the market. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.65%. Japan’s Nikkei bounced 1.6% after a 3.4% drop last week. Chinese blue chips slid 0.9% and touched five-year lows after data showed consumer prices fell 0.5% in November, the sharpest drop since late 2020.
EUROSTOXX 50 futures and FTSE futures were little changed, while S&P 500 futures were flat and Nasdaq futures edged down 0.2%. The Treasury market faces a test of its own in the shape of $108 billion in a new supply of three-year, 10-year, and 30-year paper. Yields on 10-year notes were steady at 4.24%. In currency markets, all eyes were on the yen after some wild swings as speculation swirled around the Bank of Japan’s monetary policy. The dollar did manage to nudge up on Monday to reach 145.56 yen.
The dollar fared better on the euro at $1.0767, which was pressured by market pricing for early ECB rate cuts. In commodity markets, gold took a knock after the jobs report and was last down at $1,998 an ounce. Oil prices edged higher after sliding 3.9% last week to five-month lows amid doubts that all OPEC+ members would stick with supply cuts. Prices got some support when Washington announced it would rebuild its strategic oil reserves. Brent was up 53 cents at $76.37 a barrel, while U.S. crude added 47 cents to $71.70. The market will also be watching the outcome of the COP28 climate summit, which is working on a first-of-its-kind deal to phase out the world’s use of fossil fuels.