Asian shares edge higher

Sydney — Asian stocks edged up and the dollar slid on Monday after global equities enjoyed their best week in nine months on the expectation the US economy would dodge a recession and cooling inflation would kick off a cycle of interest rate cuts.

The prospect of lower borrowing costs saw gold clear $2,500/oz for the first time and the dollar dip against the euro, while the yen made a sudden lunge higher that weighed on the Nikkei.

Federal Reserve members Mary Daly and Austan Goolsbee were out at the weekend to flag the possibility of easing in September, while minutes of the last policy meeting due this week should underline the dovish outlook.

Fed chair Jerome Powell speaks in Jackson Hole on Friday and investors assume he will acknowledge the case for a cut.

“Although it may be too early to declare victory — and central bankers will certainly be prudent to avoid this in their official rhetoric — the inflation scare that had dominated the policy debate since prices started to soar during the pandemic has now largely vanished,” said Barclays economist Christian Keller.

“Inflation may not be quite at the 2% target yet, but it is close and going in the right direction.”

Futures are fully priced for a quarter-point move, and imply a 25% chance of 50 basis points (bps) with much depending on what the next payrolls report shows.

Analysts at Goldman Sachs cautioned that annual benchmark revisions to the jobs series are due on Wednesday, which could see a large downward revision of between 600,000 and 1-million positions, though this would likely overstate the weakness of the labour market.

For now, the expectation of a softer than soft landing for the US economy has S&P 500 futures up 0.2% and Nasdaq futures ahead by 0.3%, on top of last week's gains.

Eurostoxx 50 futures added 0.2% and FTSE futures eased 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.0%, having rallied 2.8% last week.

Japan’s Nikkei fell 1.2% as the yen rose, though that followed a near 9% bounce last week. Chinese blue chips firmed 0.4%.

The Fed is hardly alone in contemplating looser policy, with Sweden’s central bank expected to cut rates this week, and possibly by an outsize 50bps.

In currency markets, the dollar lapsed 1.0% to ¥146.20, and further away from last week’s top of ¥149.40. The euro firmed to $1.1030, just below last week’s peak of $1.1047.

“The overall Fed message this week is likely to reassure market participants looking for confirmation that policy rate cuts are now imminent,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.

“As such, the greenback may well remain under pressure in the near term, although given the extent to which Fed easing is already discounted, we doubt there is that much further dollar weakness in store.”

A softer dollar combined with lower bond yields to help gold hold at $2,500/oz, and near a record peak of $2,509.69.

Oil prices dipped again as concerns about Chinese demand continued to weigh on sentiment.

Brent fell 11c to $79.57 a barrel, while US crude lost 20c to $76.45 a barrel.

Reuters