Source: AFP
Asian stocks were mixed on Tuesday as attention turned to key US inflation data that could play a key role in the Federal Reserve’s interest rate decision-making, with investors scaling back expectations of how many cuts brings about.
With consumer prices rising in January and February, the labor market still strong and the economy in rude health, traders have regularly revised their forecasts for monetary easing this year, and some are even considering no cuts before 2025.
Stocks rose in New York on Friday after closely watched March nonfarm payrolls data came in well above estimates, with traders focused on tepid wage growth.
However, a miss to the upside in this week’s consumer price index report could send shivers through markets, analysts warned.
“This upcoming release is arguably the most critical financial print of the year,” said Stephen Innes at SPI Asset Management.
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Asian markets were mostly higher as traders weighed the outlook for interest rates
“Investors are eagerly awaiting this report in the hope that it will provide more insight into the Federal Reserve’s likely timing for rate cuts and the frequency of such cuts.
“The big problem hiding in plain sight is that a larger segment of the investment community is even considering the prospect of not cutting interest rates this year, adding further uncertainty to the market outlook.”
Chris Larkin at E*Trade at Morgan Stanley added: “While the Fed has been reluctant to read too much into months of higher-than-expected inflation data, a third month may prompt them to change their pace.”
Investors now expect about 60 basis points of cuts this year — implying just two cuts — with a less than 50 percent chance of three, according to Bloomberg News.
But Chicago Fed chief Austan Goolsbee warned that not easing monetary policy could backfire.
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The ECB ruled it would stop for the last time before cutting interest rates in June
“You have to be careful how long … you want to be so restrictive,” he told Chicago radio station WBEZ.
“If you stay there too long, the unemployment rate will start to rise,” he added.
The European Central Bank’s policy meeting on Thursday is expected to end unchanged, but an improving outlook for inflation has increased bets that it will begin to ease soon.
Wall Street’s three main indexes ended a tepid day at a steady pace, and Asia was mixed into the morning.
Tokyo rallied on a weaker yen, which is nearing the 152 level to the dollar, which many believe could prompt intervention by Japanese authorities.
Hong Kong, Sydney, Singapore and Taipei were also in positive territory, but Shanghai, Seoul and Wellington slipped.
The end of the week also marks the start of earnings season in the US, with JPMorgan, Wells Fargo and Citigroup leading the way.
The results will be closely watched for an idea of the impact of high inflation and interest rates on corporate results, especially in light of the strong rally in stocks that has been partly based on confidence in future earnings.
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US hiring beats expectations in March
But JPMorgan chief Jamie Dimon warned that Wall Street markets were overpriced and said “persistent inflationary pressures” could lead to higher borrowing costs.
Keys around 02:30 GMT
Tokyo – Nikkei 225: UP 0.5 percent at 39,540.76 (break)
Hong Kong – Hang Seng Index: UP 1.0 percent at 16,905.96
Shanghai Composite: DOWN 0.2 percent at 3,039.84
Dollar/yen: DOWN at 151.84 yen from 151.85 yen on Monday
EUR/USD: DOWN at $1.0858 from $1.0861
GBP/USD: DOWN to $1.2654 from $1.2656
Euro/pound: DOWN to 85.79 pence from 85.80 pence
West Texas Intermediate: UP 0.4 percent to $86.75 a barrel
North Sea Brent crude: UP 0.4% to $90.73 a barrel
New York – Dow: FLAT at 38,892.80 (close)
London – FTSE 100: UP 0.4 per cent at 7,943.47 (close)
Source: AFP