Asian stocks up ahead of inflation tests

Asian stocks up ahead of inflation tests
Asian stocks up ahead of inflation tests

Asian stocks edged higher on Monday as investors braced for a data-heavy week that culminates with a key U.S. inflation report that could pave the way for a cut in interest rates there, even if not for several months.

Public holidays in the United States and the United Kingdom made trading difficult ahead of Friday’s figures on core personal consumption expenditures (PCE), the Federal Reserve’s preferred measure of inflation. Median forecasts call for an increase of 0.3% in April, which would keep the annual pace at 2.8%, with downside risks.

“Consumer and producer price data suggest that core PCE inflation lost momentum in April, after a strong start to the year. Indeed, we expect the core index to rise by 0.22% m/m versus 0.32% in March and an initial estimate of 0.25%,” TD Securities analysts said in a note.

“We also expect the main index to increase by 0.23% from March, while the benchmark index will likely shrink to 0.26%.

Euro zone inflation figures are also due on Friday and an expected rise to 2.5% should not prevent the European Central Bank from easing policy next week.

Policymakers Piero Cipollone and Fabio Panetta both indicated an upcoming cut over the weekend, while markets imply an 88% chance of an easing to 3.75% on June 6.

The Bank of Canada could also ease policy next week, while the Fed would wait until September to take its first steps.

At least eight Fed officials are scheduled to speak this week, including twice the influential New York Fed Director John Williams.

The head and deputy head of the Bank of Japan will speak later on Monday, along with the ECB’s chief economist. The BOJ will hold its policy meeting on June 14 and it is possible that it will deviate from the global trend and raise rates again, albeit at a modest level of 0.15%.

The prospect of lower borrowing costs across most of the world has been positive for stocks and commodities, although many markets suffered profit-taking last week.

MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.1%, after sliding 1.5% last week and moving away from a two-year peak .

Japan’s Nikkei rose 0.3%, ahead of the release of consumer prices in Tokyo later in the week.

S&P 500 futures were flat, while Nasdaq futures fell 0.1% after hitting record highs last week following Nvidia’s earnings release that beat expectations.

Indeed, Nvidia alone has accounted for a quarter of the S&P 500’s gains since the start of the year, while the 7 technology darlings have increased by 24% over the year.

In the currency markets, attention was once again focused on the yen and the risk of Japanese intervention before the 160.00 level. The dollar settled at 156.89 yen, after gaining 0.9% last week and moving closer to its recent high of 160.245. Japan renewed efforts to counter excessive falls in the yen during a weekend meeting of Group of Seven (G7) financial leaders, after a recent rise in bond yields to a 12-year high failed to slow the decline of the currency.

The euro remained stable at $1.0845, far from its recent peak at $1.0895.

Gold held steady at $2,337 an ounce, after falling 3.4% last week and moving away from an all-time high of $2,449.89.

Oil prices remained near four-month lows on concerns about demand as the U.S. driving season begins this week. Investors are waiting to see whether OPEC+ will discuss further production cuts in an online meeting on June 2, although analysts doubt there will be consensus for such a move.

Brent was up 5 cents at $82.17 a barrel, while U.S. crude rose 9 cents to $77.81 a barrel.

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