19-6-2023 (SYDNEY) Asian shares started the week cautiously following their strongest weekly performance in five months, with investors closely monitoring China’s rate decision and U.S. Federal Reserve Chair Jerome Powell’s testimonies for insights into the future path of interest rates.
Early in Asia, S&P 500 futures rose by 0.1 percent, while Nasdaq futures gained 0.3 percent. Cash U.S. Treasuries remained untraded due to the Juneteenth holiday, but futures edged up slightly with limited liquidity.
In Japan, the Nikkei fell by 0.5 percent after reaching a three-decade high on Friday, boosted by the Bank of Japan’s decision to maintain its ultra-easy policy stance, leading to a seven-month low for the yen against the U.S. dollar.
MSCI’s broadest index of Asia-Pacific shares, excluding Japan, declined by 0.1 percent after reaching a four-month high on Friday and posting a 3 percent gain for the week, its best performance since January.
Market expectations for stronger stimulus in China are increasing after a cabinet meeting on Friday discussed measures to stimulate economic growth. Additionally, the People’s Bank of China is widely anticipated to lower its benchmark loan prime interest rates on Tuesday, following a similar reduction in medium-term policy loans last week.
Robin Xing, Morgan Stanley’s chief China economist, predicts an imminent stimulus package due to second-quarter gross domestic product (GDP) growth tracking at 0 percent, falling short of the government’s target of approximately 5 percent for the year.
Xing stated, “This requires more policy easing to stabilize investment – the key drag on 2Q GDP growth – and prevent weakness from spreading to household sentiment and services.”
After an eventful week with central bank decisions, as the stock market celebrated the Federal Reserve’s decision to delay a rate hike in June, investors are now focused on a series of Fed speakers. Powell is scheduled to deliver congressional testimonies on Wednesday and Thursday.
Ray Attrill, head of foreign exchange strategy at National Australia Bank, explained, “Fed Chair Powell gives House and Senate testimony with a focus on whether the July FOMC (Federal Open Market Committee) meeting is truly ‘live,’ and if the Fed dot plot of two more hikes is a true base case depending on the data or more ‘aspirational’.”
Market expectations currently imply a 70 percent probability of a quarter-point rate hike by the Fed in July, followed by a steady stance for the remainder of the year. However, officials have expressed hawkish sentiments, and the dot plot indicates two additional hikes.
The dollar index showed little change against major peers early on Monday after declining 1.2 percent the previous week, marking its largest weekly drop in five months.
The yen was weakened by a dovish stance from the Bank of Japan, touching a seven-month low of 141.90 against the dollar, while the euro remained close to a five-week high at $1.094, supported by the hawkish European Central Bank’s recent quarter-point hike.
Oil prices started the week on a downward trend. U.S. crude futures declined by 0.7 percent to $71.24 per barrel, while Brent crude dropped 0.8 percent to $76.98 per barrel.
