- MSCI Asia ex-Japan reached its highest level since April 21st
- The Fed expects to skip a rate hike this week
- Oil is down more than 1% on China concerns
SINGAPORE (Reuters) – Asian stocks stalled in cautious trading on Monday as investors braced for central bank decisions in Europe, Japan and the United States this week, along with US inflation data that could potentially affect the Federal Reserve’s monetary policy.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was up 0.07% at 521.24, after touching a more than one-month high of 521.94 earlier in the session. The index is up 4% for the month. Japan’s Nikkei (.N225) rose 0.41%, as Australia closed.
Futures indicated that European stocks would open higher, with Eurostoxx 50 futures up 0.35%, German DAX futures up 0.34% and FTSE futures up 0.40%. E-mini futures for the S&P 500 rose 0.13%.
Last week, the Reserve Bank of Australia and the Bank of Canada surprised markets by raising interest rates to tame stubborn and sticky inflation, sparking fears that the Fed may follow suit and take a hawkish stance at its June meeting.
Citi strategists said the Fed may counter the lesson learned by other central banks such as the Bank of Canada – more tightening is still needed to bring inflation to 2%.
Markets are pricing in a 71% chance that the US central bank will sit still when it meets on June 13-14, according to CME FedWatch.
“It’s a close call between a 25 basis point increase or ‘skip’…and it will turn into CPI on Tuesday,” Citi said in a note.
Citi expects a 25 basis point increase from the Fed. “The most obvious action to take when rates are recognized to be higher is to raise rates.”
While doubts remain among investors about the path the Fed will take this week, they are more confident that the European Central Bank, which meets on Thursday, will raise interest rates and remain hawkish.
“We expect (ECB President) Lagarde to maintain a hawkish stance on inflation arguing that more needs to be done on the inflation front,” said Mohit Kumar, economist for Europe at Jefferies.
“It is unlikely that Lagarde will give any hint that she is ready to pause after July, which is what the market is currently pricing in,” said Kumar, who expects the ECB to raise interest rates by 25 basis points.
In China, the Shanghai Composite Index (.SSEC) was down 0.3%, while Hong Kong’s Hang Seng Index (.HSI) was down 0.45%. China’s faltering post-COVID-19 economic recovery weighed on stocks, as investors pinned their hopes on more policy stimulus as weak manufacturing and exports hurt the broader outlook this year.
After a weaker-than-expected inflation rate in May, data on credit lending, retail sales and industrial production released in China this week could fall short of expectations.
The People’s Bank of China (PBOC) is set to rollover a batch of 200 billion yuan ($28.00 billion) of medium-term policy loans, which matures Thursday, and focus on its renewal rate.
A cut, which is possible given that China’s post-pandemic recovery is starting to wane, would widen the gap between US and Chinese rates and could weigh on the yuan.
In the currency market, the dollar index, which measures the greenback against six major competitors, rose 0.087%, with the euro declining 0.07% to $1.074.
The yen slipped 0.06% to 139.44 per dollar ahead of the Bank of Japan’s (BOJ) monetary policy meeting on Friday.
The Bank of Japan is expected to maintain ultra-loose monetary policy this week and its forecast for a moderate economic recovery.
Elsewhere, the Turkish lira fell to an all-time low of 23.77 against the dollar, as investors waited for clues about policy moves after the appointment of a new central bank governor.
US crude fell 1.33% to $69.24 a barrel and Brent crude at $73.82, down 1.3% for the day. Both benchmarks posted their second consecutive weekly decline last week as disappointing Chinese economic data raised concerns about demand growth in the world’s largest crude importer.
Spot gold fell 0.1% to $1959.29 an ounce. And US gold futures fell 0.15 percent to $ 1959.30 an ounce.
Editing by Jacqueline Wong. Editing by Simon Cameron Moore
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