7-8-2023 (SYDNEY) Asian share markets began the week on a cautious note on Monday (Aug 7) following a mixed US jobs report that triggered a rally in bonds. However, investors are bracing for new challenges with US and Chinese inflation figures scheduled for release later in the week.
MSCI’s broadest index of Asia-Pacific shares outside Japan experienced a slight dip in thin trade after posting a 2.3 per cent loss last week. In Japan, the Nikkei declined by 1.0 per cent, testing its July low. Meanwhile, S&P 500 futures edged up by 0.2 per cent and Nasdaq futures rose by 0.3 per cent in early trade.
As earnings reports continue to pour in, roughly 90 per cent of S&P 500 earnings have surpassed consensus estimates, with more than 79 per cent of companies exceeding expectations. Notable results expected this week include Walt Disney and News Corp.
Eyes are now focused on the upcoming US and Chinese inflation data. US consumer prices data due on Wednesday is forecast to show a slight pickup in headline inflation to an annual 3.3 per cent, while the more significant core rate is expected to slow to 4.7 per cent. Analysts at Goldman Sachs warn of potential downside risks to the numbers, partially due to falling car prices, which could sustain the bond rally.
In China, the market is closely watching for signs of deflation, with annual consumer prices predicted to decrease by around 0.5 per cent and producer prices falling 4 per cent.
The mixed payrolls report last week helped reverse some of the losses in Treasuries, leading to a bear steepening. Futures imply a low probability of a Federal Reserve rate hike in September (12 per cent) and a slight increase by year-end (24 per cent).
Michael Gapen, an economist at BofA, has cautioned that the market’s expectations for policy easing next year are too high, given the recent strong economic data. BofA has raised its year-end forecast for two-year and 10-year yields to 4.75 per cent and 4 per cent, respectively.
As yields pulled back, the US dollar also eased, hovering around 141.90 yen and falling short of last week’s high at 143.89. The euro remained steady at €1.10 after rebounding from last week’s low of €1.0913.
Gold maintained its position at US$1,942 per ounce following Friday’s rally from US$1,928.90. Meanwhile, oil prices remained strong, marking a sixth consecutive week of gains amid supply constraints. Brent crude rose 17 cents to US$86.41 a barrel, and US crude gained 12 cents to US$82.94.
