Asian shares struggle as Japanese inflation meets expectations; Investors cautious ahead of price data in Europe and the US
Asian shares faced challenges on Tuesday as slightly warmer-than-expected Japanese inflation figures made investors wary ahead of upcoming price data releases in Europe and the United States. The yen stabilized against the dollar and rebounded from a three-month low against the euro due to Japanese inflation staying at the central bank’s target of 2% year-on-year. This outcome has kept alive expectations that Japan will exit negative interest rates by April. In Tokyo, the Nikkei index rose 0.4% to reach a new record high, while MSCI’s broadest index of Asia-Pacific shares outside Japan remained flat, below last week’s seven-month peak.
Wall Street indexes experienced a decline on Monday, and futures for the S&P 500 and Nasdaq dipped 0.1% in morning trade. The Federal Reserve’s preferred gauge of inflation, the core personal consumption expenditures (PCE) price index, is set to be released on Thursday with forecasts predicting a 0.4% increase. Analysts at ANZ Bank stated that if the core month-on-month reading matches expectations, it would be the highest since February last year and align with the Fed’s message of patience.
Rate jitters and significant auctions totaling $127 billion on Tuesday and an additional $42 billion on Wednesday put pressure on Treasuries, resulting in yields stabilizing during Asian trading hours. Ten-year U.S. Treasury yields fell by 2 basis points to 4.27%, while two-year yields dropped four basis points to 4.70%. The likelihood of a first Federal Reserve easing has been pushed from May to June, with a current probability of around 70%. Futures suggest slightly more than three quarter-point cuts this year compared to five at the beginning of May.
On the geopolitical front, U.S. President Joe Biden expressed his hope for a ceasefire in the Israel-Hamas conflict in Gaza to begin by next Monday, as both sides appeared to be nearing an agreement. Brent crude futures remained within recent ranges, rising 0.2% to $82.69 a barrel.
Upcoming inflation figures in the European Union are scheduled for release on Friday, with the core gauge expected to slow to its lowest level since early 2022 at 2.9%. This brings the European Central Bank (ECB) closer to potentially implementing policy easing measures. Market expectations currently imply a first rate cut in June, with a 36% chance of one in April. ECB President Christine Lagarde and Bank of Greece Governor Yannis Stournaras reiterated their cautious approach towards rate cuts in their speeches on Monday.
Bank of England Deputy Dave Ramsden and Riksbank Governor Erik Thedeen will make appearances later on Tuesday, while several second-tier economic data releases from the United States and Europe are also expected, including consumer confidence figures for Germany, France, and the U.S.
Currency trading remained subdued during early Asian hours, with continued pressure on the Australian and New Zealand dollars. The Aussie fell 0.1% to reach a one-week low of $0.6530 due to a decline in iron ore prices. The New Zealand dollar also dropped 0.3% to hit a one-week low as traders reduced their bets on a potential interest rate hike by the country’s central bank during its meeting on Wednesday.
The euro held steady at $1.0848, while sterling slightly declined to $1.2676. Bitcoin experienced a sharp rise following news that software firm MicroStrategy increased its holdings. The cryptocurrency was stable at $54,777 per coin. Gold remained at $2,032 per ounce.
🎯Key takeaway: Asian shares struggled as Japanese inflation met expectations and investors remained cautious ahead of price data releases in Europe and the U.S. The yen stabilized against the dollar, and in Tokyo, the Nikkei index reached a new record high. Wall Street indexes fell, and Treasury yields steadied during Asian trading hours. Geopolitically, hopes for a ceasefire in the Israel-Hamas conflict were expressed by U.S. President Joe Biden. In the energy market, Brent crude futures remained within recent ranges. In Europe, upcoming inflation figures may lead to potential policy easing by the ECB. Currency trading was subdued, with pressure on the Australian and New Zealand dollars. Bitcoin rose sharply, while gold remained stable.
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