Asian shares firmed up slightly on Monday as investors prepared for a busy week of inflation data that could set the stage for significant monetary policy decisions in both Europe and the United States. The anticipation of these economic indicators has heightened market sensitivity, with thin trading expected due to public holidays in Britain and the United States.
The Nikkei index rose by 0.5% amid light trading volumes, while the broader MSCI Asia-Pacific index, excluding Japan, gained 0.6% after slipping 1.5% the previous week. These movements reflect cautious optimism ahead of Friday’s release of the core personal consumption expenditures (PCE) data in the U.S., the Federal Reserve’s preferred measure of inflation. Median forecasts suggest a 0.3% rise in April, maintaining an annual pace of 2.8%, although there are risks of a lower outcome.
Analysts at TD Securities noted that consumer and producer price data indicate that core PCE inflation lost momentum in April after a strong start to the year. They forecast a 0.22% month-over-month increase for the core index, compared to 0.32% in March.
In Europe, inflation data due on Friday is expected to show a slight increase to 2.5%, but this is not anticipated to deter the European Central Bank (ECB) from easing monetary policy next week. ECB policymakers Piero Cipollone and Fabio Panetta hinted at a potential rate cut, with market expectations reflecting an 88% chance of a reduction to 3.75% on June 6. The ECB’s chief economist confirmed the central bank’s readiness to begin cutting rates but emphasized the need for restrictive policy measures throughout the year.
The Bank of Canada might also ease its monetary stance next week, while the U.S. Federal Reserve is expected to wait until September for any potential rate changes. This week will see numerous Fed officials speaking, including two appearances by John Williams, the influential head of the New York Fed.
In Japan, the Bank of Japan (BOJ) indicated it would proceed cautiously with its inflation-targeting frameworks, recognizing the unique challenges posed by years of ultra-easy monetary policy. The BOJ’s policy meeting on June 14 could see a modest rate hike, diverging from the global trend.
The prospect of lower borrowing costs globally has been a positive driver for equities and commodities, though profit-taking led many markets to dip last week. Taiwan’s stock market reached a record high, buoyed by tech sector optimism, with a 7% gain for the month. Japan’s Nikkei also climbed 0.5%, supported by an upcoming Tokyo consumer price reading. Chinese blue-chip stocks firmed by 0.4%, with key manufacturing and services surveys for May scheduled for release on Friday.
In futures trading, EUROSTOXX 50 futures eased by 0.1%, while FTSE futures remained closed. S&P 500 futures and Nasdaq futures both dipped 0.1%. The Nasdaq recently hit record highs, driven by Nvidia’s strong earnings report, which has significantly contributed to the S&P 500’s gains this year.
Currency markets focused on the yen, which neared a critical level of 160.00 against the dollar. The dollar stood at 156.78 yen after gaining 0.9% last week. Japan renewed efforts to counter the yen’s depreciation during a G7 finance leaders meeting, following a recent rise in bond yields.
The euro remained steady at $1.0847, just shy of its recent peak of $1.0895. Gold prices held at $2,342 an ounce after a 3.4% decline last week, pulling back from an all-time high of $2,449.89.
Oil prices hovered near four-month lows due to demand concerns as the U.S. driving season begins. Brent crude was up 20 cents to $82.32 a barrel, while U.S. crude rose 27 cents to $77.99 per barrel. Investors are watching the OPEC+ meeting on June 2 for potential discussions on new output cuts, although consensus for such a move appears unlikely.
As markets await crucial inflation data and potential monetary policy shifts, the week promises to be pivotal in shaping investor sentiment and economic forecasts. The interplay between inflation figures and central bank actions will be closely monitored, impacting global financial markets.
