Amidst a week filled with five central bank meetings and data on U.S. inflation, Asian shares began to decline on Monday. These events could confirm or deny market expectations for an early, swift round of rate cuts next year.
Investors’ expectations for a March Federal Reserve cut have already been lowered by an optimistic payrolls report; however, May is still priced at a 76% chance of happening. The emphasis this week will be on Chair Jerome Powell’s press conference and the so-called dot plots for rates, as it is expected that the Fed will maintain rates at 5.25–5.50%.
The outlook will also be impacted by Tuesday’s consumer price report for November, which is expected to show a 0.3% increase in the core and an unchanged headline rate, according to analysts.
John Briggs, global head of strategy at NatWest Markets, stated, “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,” he added. “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.”
On Thursday, the European Central Bank, Bank of England, Norges Bank, and Swiss National Bank will convene; of these, Norway is the only one that is thought to be a potential hiker. Additionally, there’s a chance the SNB will experiment with more interventions to devalue the franc.
Investor caution was understandable given the significant stakes in the results, and MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) decreased by 0.7%. Japan’s Nikkei (.N225) gained 1.6% following a 3.4% loss last week on rumors that the ultra-easy monetary policy would end. After data revealed that consumer prices fell 0.5% in November—the biggest decline since late 2020—Chinese blue chips (.CSI300) fell 0.6%.
Futures for the FTSE and EURO STOXX 50 saw minimal changes. Nasdaq futures decreased by 0.2%, while S&P 500 futures remained unchanged. A test unique to the Treasury market will come in the form of a $108 billion fresh supply of three-, 10-year, and 30-year notes. After rising on Friday in response to the jobs report, yields on 10-year notes remained stable at 4.24%, although they ended the week unchanged.
Following some erratic fluctuations, the yen came under intense scrutiny in the currency markets as rumors circulated that the Bank of Japan might announce a further shift from its ultra-easy policy during a meeting the following week. The dollar did make some progress on Monday, rising to 145.40 yen after plunging 1.3% the previous week and momentarily hitting 141.60. Against the euro, the dollar performed better at $1.0770, under pressure from market pricing for early ECB rate cuts.
“With inflation falling quickly in the Eurozone, we do not expect the ECB post-meeting communication to provide too much push back against current market pricing for a rate cutting cycle beginning in April,” according to CBA analysts in a note. “We expect the first rate cut will come a little later in June.”
Following the jobs report, gold prices dropped and it was last trading at $1,003 an ounce in the commodities markets.
Oil prices stagnated following a 3.9% decline to five-month lows last week due to uncertainty over whether all OPEC+ members would continue with supply curbs. When Washington declared on Friday that it would replenish its strategic oil reserves, prices did see some support.
The result of the COP28 climate summit, which is attempting to reach a historic agreement to gradually phase out the use of fossil fuels worldwide, will also be watched by the market. U.S. crude gained 7 cents to $71.30 while Brent gained 9 cents to $75.93 per barrel.
- Published By Team Genuine Reporter