subscribe 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.
Subscribe now
A man walks past an electronic screen outside a brokerage in Tokyo, Japan. File photo: REUTERS
A man walks past an electronic screen outside a brokerage in Tokyo, Japan. File photo: REUTERS

Sydney — Asian shares crept to 15-month highs on Monday in a week where inflation figures could make or break hopes for earlier US rate cuts, while Chinese activity data will test optimism about a sustained recovery in the world’s number two economy.

Beijing has already reported a welcome pickup in inflation to an annual 0.3% in April, helping to soothe the worry about a slide into prolonged deflation. Forecasts favour further gains in April retail sales and industrial output due on Friday.

Chinese authorities are also set to sell 1-trillion yuan ($138.24bn) in longer-dated bonds to help fund stimulus spending at home.

The improved sentiment has helped lift Chinese blue chips to a seven-month high. The index was 0.1% softer on Monday with some sectors pressured by reports the White House was about to release details of new tariffs on Chinese goods.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2%, after rallying for three consecutive weeks.

Japan’s Nikkei was flat, still saddled with speculation further losses for the yen could lead the Bank of Japan to raise rates in the next few months.

The central bank sent a hawkish signal to markets on Monday by cutting the amount of Japanese government bonds it offered to buy in a regular operation, so pushing yields up.

Globally, much now depends on whether the US April inflation report will show a moderation after three months of upside surprises. Median forecasts are for core consumer prices to rise 0.3% in the month, compared to 0.4% in March, pulling the annual rate down to 3.6%.

So crucial are the data that rounding to the second decimal place could make all the difference.

“Our unrounded core CPI forecast at 0.27% month on month suggests larger risks for a dovish surprise to a rounded 0.2% increase,” noted analysts at TD Securities.

A low number would likely boost bets the Federal Reserve could ease as soon as July, which is priced at only a 25% chance. Equally, a high inflation print could push a rate cut out past September and challenge pricing for 42 basis points (bps) of easing in 2024.

Also due are figures on US producer prices, retail sales and jobless claims, along with final reports on European inflation that should reinforce expectations for a June rate cut from the European Central Bank (ECB).

There are a host of Fed speakers this week to update markets on their thinking, including Fed chair Jerome Powell who appears with the head of the Dutch central bank on Tuesday.

Upbeat US earnings

Eurostoxx 50 futures were steady, while FTSE futures dipped 0.2%. S&P 500 futures and Nasdaq futures were both little changed early on Monday, after rallying last week as company earnings came in strong. With 80% of the S&P 500 having reported results, companies are on track to have increased earnings by 7.8%, well ahead of the April expectation of 5.1%.

Once Nvidia reports on May 22, Magnificent Seven quarterly earnings are on track to jump 49%, according to Tajinder Dhillon, senior research analyst at LSEG.

Companies reporting this week include Walmart, Home Depot and Cisco.

Global share indices have also bounced to record highs in recent weeks, even as markets have scaled back some of their more aggressive wagers for rate cuts in 2024.

“A straightforward interpretation of financial market performance is that there is more underlying strength in the global economy than had been anticipated and higher interest rates are reflecting rather than impeding global growth,” says Bruce Kasman, head of economic research at JPMorgan.

“We lean in this direction as our 2024 growth and policy rate forecasts both move higher.”

The relative outperformance of the US economy continues to underpin the dollar, while only the threat of Japanese intervention is stopping it from retesting the ¥160 barrier.

The dollar was holding firm at ¥155.92 on Monday, while the euro was flat at $1.0770 having faced resistance around $1.0791 last week.

Gold eased a touch to $2,358/oz, after rising 2.5% last week on demand from momentum funds and talk of persistent buying by China.

Oil prices faded late last week as US petrol and distillate inventories rose ahead of the start of the summer driving season.

Brent was down another 22c at $82.57 a barrel, while US crude dipped 17 cents to $78.09 a barrel

Reuters

subscribe 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.
Subscribe now

Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.