Written by Wayne Cole
SYDNEY (Reuters) – Asian stock markets followed Wall Street’s decline on Monday, but the dollar remained vulnerable ahead of U.S. inflation trends that could speed or delay the start of global interest rate cuts. reflected.
The yen edged lower as data released on Monday showed Japan was not actually in recession after economic growth for the December quarter was revised upward to an annualized 0.4%. Rose.
Reuters reported that an increasing number of Bank of Japan policymakers are open to the idea of ending negative interest rates this month, as large wage increases are expected in this year’s annual wage negotiations.
The U.S. Consumer Price Index (CPI) report for February, released on Tuesday, is expected to rise 0.4% in the month, with the annual pace steady at 3.1%. Core inflation is expected to rise by 0.3%, bringing the annual pace to 3.7%, the lowest since early 2021.
The core slowdown complements the soft picture seen in February’s jobs report, in which the unemployment rate hit a two-year high of 3.9%, and the US Federal Reserve (Fed. This will likely keep the country on track for lower interest rates.
“We continue to expect the federal funds rate to be cut by 25 basis points four times starting in June of this year,” Goldman Sachs analysts said in a note. “However, the weak employment report made it more likely that the FOMC would begin an easing cycle in May.”
“We expect central banks in developed countries to cut interest rates by an average of 128 basis points over the next 12 months.” “We also expect emerging market central banks to cut interest rates by an average of 190 basis points.”
Futures suggest there is about a 30% chance the Fed will cut rates in May and a 70% chance of the first rate cut in June.
China’s price data released over the weekend showed that although producer prices remain mired in deflation, inflation showed a welcome recovery to 0.7% in February.
The Chinese government also promised to improve home sales in a “strong” and “orderly” manner to support the country’s struggling residential real estate market, without providing details.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3% after hitting an eight-month high on Friday, with stocks supported by hopes of lower borrowing costs.
Japan’s Nikkei stock average, which hit a new high last week, fell 1.2%.
Bank of Japan turns positive
S&P 500 futures and Nasdaq futures were both down slightly on Friday, as artificial intelligence powerhouse Nvidia fell 5.6%. [.N]
U.S. Treasuries continued to rise on the positive employment report, with the 10-year yield hitting a one-month low of 4.038% and last trading at 4.080%.
The drop in yields is hurting the dollar, especially against the yen, as there is speculation in the market that the Bank of Japan will end its negative interest rate policy (NIRP) and yield curve control (YCC) this month. .
“We believe the yen is tactically expected to strengthen on short covering in the run-up to the March 18th and 19th Bank of Japan meetings, which could lead to changes in YCC and NIRP. , the recent rise in inflation has only further strengthened our belief that tactical “JPY long” said Paul Robson, head of G10 currency strategy at NatWest Markets.
“We tactically turned bearish against the US dollar and initiated short positions against both the euro and the Japanese yen,” he added. “Our short-term fair value model suggests that EUR/USD is too low based on the steepness of the curve relative to bond spreads.”
The dollar fell 2% last week, hitting a five-week low of 146.48 yen and falling to 146.84 yen. [FRX/]
The euro was firm at $1.0939, after rising 0.9% to $1.0980 last week.
The dollar and lower bond yields are supporting non-yielding gold, which rose to $2,180 an ounce, hitting a record high last week with a 4.5% rise. [GOL/]
Oil prices are looking even tougher as worries about Chinese demand offset supply cuts by producer group OPEC+. [O/R]
Brent crude oil fell 27 cents to $81.81 a barrel, and U.S. crude oil fell 23 cents to $77.78 a barrel. [O/R]
(Reporting by Wayne Cole; Editing by Jamie Freed)
