SYDNEY: Asian shares started cautiously on Monday ahead of a week packed with a quintet of central bank meetings and data on US inflation that could make or break market hopes for an early and rapid fire round of rate cuts next year.
An upbeat payrolls report has already seen investors scale back expectations for a March cut by the Federal Reserve, though May remains priced at a 76% chance.
The Fed is considered certain to hold rates at 5.25-5.50% this week, putting the focus on the “dot plots” for rates and Chair Jerome Powell’s press conference.
The consumer price report for November on Tuesday will also influence the outlook with analysts forecasting an unchanged headline rate and a 0.3% rise in the core.
“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,” said John Briggs, global head of strategy at NatWest Markets.
“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.”
The European Central Bank, Bank of England, Norges Bank and the Swiss National Bank all meet on Thursday, with Norway the only one considered a possible hiker.
Asian shares fall with Wall Street, oil helps boost bonds
There is also a risk the SNB may toy with renewed intervention to weaken the franc. With so much riding on the outcomes, investors were understandably cautious and MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.08%.
Japan’s Nikkei bounced 1.2%, after shedding 3.4% last week amid speculation of an end to super-easy monetary policy. S&P 500 futures and Nasdaq futures were little changed.
Chinese markets are at risk of another tough week after data showed consumer prices fell 0.5% in November, the sharpest drop since late 2020.
The Treasury market faces a test of its own in the shape of $108 billion in new supply of three-year, 10-year and 30-year paper.
Yields on 10-year notes were steady at 4.24% having risen on Friday in the wake of the jobs report, though they still ended flat on the week.
In currency markets all eyes were on the yen after some wild swings as speculation swirled the Bank of Japan could signal another step away from its super easy policy at a meeting next week.
The dollar was last at 144.97 yen, having lost 1.3% last week and briefly touching a low of 141.60. The dollar fared better on the euro at $1.0761, which was pressured by 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,” said analysts at CBA in a note.
“We expect the first rate cut will come a little later in June.”
In commodity markets, gold took a knock after the jobs report and was last at $1,006 an ounce.
Oil prices idled after sliding 3.9% last week to five-month lows amid doubts that all OPEC+ members would stick with supply cuts.
Prices did get some support on Friday when Washington announced it would rebuild its strategic oil reserves.
The market will also be watching the outcome of the COP28 climate summit, which is working on a first-of-its-kind deal to phase out the world’s use of fossil fuels.
Brent was up 5 cents at $75.89 a barrel, while US crude was steady at $71.23.
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