Equities begin the week subdues as investors mull when Fed will begin rate cuts after another blowout jobs report
08 April 2024 - 08:02
byAnkur Banerjee
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A man passes by an electronic screen displaying Japan’s Nikkei share average. Picture: REUTERS/ISSEI KATO
Singapore — Asian shares started the week on a subdued note on Monday, while the dollar firmed as investors weighed when the US Federal Reserve will start cutting rates in the wake of yet another blowout jobs report.
Oil prices fell nearly 2% as Middle East tension eased after Israel withdrew more soldiers from southern Gaza, while gold prices slumped 1% after scaling record high on Friday as US treasury yields remain elevated.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.26% higher, while Tokyo’s Nikkei rose 1%.
China mainland stocks reopened after extended holidays from Thursday, with the blue-chip gauge 0.5% lower. Hong Kong’s Hang Seng index rose 0.33%.
Wall Street’s main indices closed higher on Friday after data showed US job growth blew past expectations in March and wages increased at a steady clip, suggesting the economy ended the first quarter on solid ground.
“Resilient economic data is a double-edged sword for markets,” said ANZ strategists in a note. “On the positive side, resilient growth indicates an economy far from recession, but it could also mean the Fed will keep rates higher for longer.”
Markets are now pricing in 49.1% chance of an interest rate cut from the Fed in June, the CME FedWatch tool showed, with July shaping up to be the new starting point for the eagerly awaited easing cycle.
Investors are also pricing in 62 basis points (bps) of cuts in 2024, less than the 75bps the Fed has projected.
Investor focus this week will be squarely on the US consumer price index (CPI) report, which is expected to show core inflation slowing to 3.7% in March from 3.8% the prior month.
The expected slip in core inflation is unlikely to bring back a possible June cut after last week’s solid data dented that chance, according to Kit Juckes, forex strategist at Societe Generale.
“Market expectations are drifting in favour of a cut in July rather than June and it’s easy to see why.”
The changing expectations on the outlook for US rates have lifted treasury yields, with the two-year treasury yield, which typically moves in step with interest rate expectations, up 4.2 bps at 4.774%, the highest in nearly four months.
The yield on 10-year treasury notes was up 4.4bps to 4.422%.
The elevated yields boosted the dollar, with the euro down 0.06% to $1.0829, while sterling was last trading at $1.2622, down 0.11% on the day.
The Japanese yen weakened 0.12% to ¥151.78 to the dollar as traders remain on alert for possible intervention by Japanese authorities.
Nicholas Chia, Asia macro strategist at Standard Chartered, said the yen would be vulnerable to a materially strong US CPI report, with “intervention speak likely to be back on the agenda”.
The dollar index, which measures the US currency against six rivals, was at 104.35.
The European Central Bank (ECB) is due to meet later this week and is widely expected to keep rates steady. Investors see almost no chance of a cut on April 11 but have fully priced in a move for June, followed by another two or three steps later in 2024.
In commodities, spot gold dropped 0.5% to $2,317.09/oz, having breached record peak last week.
US crude fell 2.32% to $84.89 a barrel and Brent was at $88.89, down 2.5% on the day.
Israel and Hamas sent teams to Egypt for fresh talks on a potential ceasefire ahead of the Eid holidays, easing tension in the Middle East that drove up oil prices by more than 4% last week on concerns of supply disruption.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Asian shares muted after US surging payrolls
Equities begin the week subdues as investors mull when Fed will begin rate cuts after another blowout jobs report
Singapore — Asian shares started the week on a subdued note on Monday, while the dollar firmed as investors weighed when the US Federal Reserve will start cutting rates in the wake of yet another blowout jobs report.
Oil prices fell nearly 2% as Middle East tension eased after Israel withdrew more soldiers from southern Gaza, while gold prices slumped 1% after scaling record high on Friday as US treasury yields remain elevated.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.26% higher, while Tokyo’s Nikkei rose 1%.
China mainland stocks reopened after extended holidays from Thursday, with the blue-chip gauge 0.5% lower. Hong Kong’s Hang Seng index rose 0.33%.
Wall Street’s main indices closed higher on Friday after data showed US job growth blew past expectations in March and wages increased at a steady clip, suggesting the economy ended the first quarter on solid ground.
“Resilient economic data is a double-edged sword for markets,” said ANZ strategists in a note. “On the positive side, resilient growth indicates an economy far from recession, but it could also mean the Fed will keep rates higher for longer.”
Markets are now pricing in 49.1% chance of an interest rate cut from the Fed in June, the CME FedWatch tool showed, with July shaping up to be the new starting point for the eagerly awaited easing cycle.
Investors are also pricing in 62 basis points (bps) of cuts in 2024, less than the 75bps the Fed has projected.
Investor focus this week will be squarely on the US consumer price index (CPI) report, which is expected to show core inflation slowing to 3.7% in March from 3.8% the prior month.
The expected slip in core inflation is unlikely to bring back a possible June cut after last week’s solid data dented that chance, according to Kit Juckes, forex strategist at Societe Generale.
“Market expectations are drifting in favour of a cut in July rather than June and it’s easy to see why.”
The changing expectations on the outlook for US rates have lifted treasury yields, with the two-year treasury yield, which typically moves in step with interest rate expectations, up 4.2 bps at 4.774%, the highest in nearly four months.
The yield on 10-year treasury notes was up 4.4bps to 4.422%.
The elevated yields boosted the dollar, with the euro down 0.06% to $1.0829, while sterling was last trading at $1.2622, down 0.11% on the day.
The Japanese yen weakened 0.12% to ¥151.78 to the dollar as traders remain on alert for possible intervention by Japanese authorities.
Nicholas Chia, Asia macro strategist at Standard Chartered, said the yen would be vulnerable to a materially strong US CPI report, with “intervention speak likely to be back on the agenda”.
The dollar index, which measures the US currency against six rivals, was at 104.35.
The European Central Bank (ECB) is due to meet later this week and is widely expected to keep rates steady. Investors see almost no chance of a cut on April 11 but have fully priced in a move for June, followed by another two or three steps later in 2024.
In commodities, spot gold dropped 0.5% to $2,317.09/oz, having breached record peak last week.
US crude fell 2.32% to $84.89 a barrel and Brent was at $88.89, down 2.5% on the day.
Israel and Hamas sent teams to Egypt for fresh talks on a potential ceasefire ahead of the Eid holidays, easing tension in the Middle East that drove up oil prices by more than 4% last week on concerns of supply disruption.
Reuters
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