Asian stocks cautious ahead of BOJ meeting and US inflation test


© Portal. FILE PHOTO: The Japanese national flag is raised at the Bank of Japan headquarters in Tokyo, Japan on September 20, 2023. Portal/Issei Kato/File photo

By Wayne Cole

SYDNEY (Portal) – Asian stocks fell on Monday after a subdued start to a week in which Japan’s central bank may move further away from its hyper-accommodative policy, while key U.S. inflation numbers helped the market price in interest rate cuts should support this country.

The Bank of Japan (BOJ) meets on Tuesday amid much talk of it considering how and when to move away from negative interest rates. None of the analysts polled by Portal expected a definitive move at this meeting, but policymakers could begin to lay the groundwork for possible change.

April was favored by 17 of 28 economists as the starting point for ending negative interest rates, making the BOJ one of the few central banks in the world to actually tighten.

“Since the last meeting in October, 10-year Japanese government bond yields have fallen and the yen has appreciated, giving the BOJ little incentive to revise policy at this stage,” said Barclays economist Christian Keller.

“We expect the BOJ to wait to confirm the outcome of the ‘Shunto’ wage negotiations next spring before taking action in April.”

fell 0.7%, partly weighed down by a firm yen. MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.3%.

South Korea’s main index rose 0.3%, showing no apparent reaction to reports that North Korea had fired a ballistic missile off its east coast.

Chinese blue chips fell slightly by 0.3% after declining for five straight weeks.

rose 0.3%, while Nasdaq futures rose 0.2%. EUROSTOXX 50 futures fell 0.3% and 0.1% respectively.

In the United States, analysts forecast a 0.2% rise in the core personal consumption expenditures (PCE) index in November, with annual inflation falling to 3.4%, its lowest level since mid-2021.

Analysts believe the balance of risk is tilted to the downside and a 0.1% increase for the month would see the six-month annual inflation rate slow to just 2.1%, close to the Federal Reserve’s target of corresponds to 2%.

Markets assume that slowing inflation means the Fed will have to ease policy to prevent real interest rates from rising and are betting on early and aggressive action.

New York Fed President John Williams tried to inflame sentiment on Friday by saying there was no talk of easing from policymakers but that markets were unwilling to listen.

MARCH MADNESS

In response, two-year Treasury yields rose only slightly, but still ended the week sharply down 28 basis points, their lowest level since mid-May.

The 10-year bond yield was at 3.91%, after falling 33 basis points last week, marking its biggest weekly decline since the start of 2020.

Fed funds futures imply a 74% chance of a rate cut as early as March, while a 39 basis point (bp) easing is priced in in May. The market also expects at least 140 basis points of rate cuts throughout 2024.

“We now forecast three consecutive 25 basis point rate cuts in March, May and June, followed by a slower pace of one cut per quarter until we reach a final rate of 3.25-3.5%, 25 basis points lower than we had previously expected,” Goldman Sachs analysts wrote in a note to clients.

“That means five cuts in 2024 and three more cuts in 2025.”

If such easing is true, some Asian central banks could ease monetary policy sooner, with Goldman preferring interest rate cuts in India, Taiwan, Indonesia and the Philippines.

The investment bank also raised its 2024 forecast and now expects 5,100 by the end of 2024, while slowing inflation and Fed easing would keep real yields low and support a price-to-earnings ratio of more than 19 .

The market’s dovish outlook for U.S. interest rates caused the dollar to slip 1.3% against a basket of currencies last week, although the Fed is far from alone in its rate-cutting plans.

Markets expect the European Central Bank to ease monetary policy by around 150 basis points next year and cuts by the Bank of England to reach 113 basis points.

That outlook kept the euro at $1.0909 after recovering from a high of $1.1004 on Friday. The dollar looked more vulnerable against the yen at 142.23, after falling 1.9% last week.

The decline in the dollar and yields is expected to have a positive impact on gold’s price of $2,021 an ounce, although that was below its recent all-time high of $2,135.40. [GOL/]

Oil prices tried to stabilize after hitting a five-month low last week amid doubts all OPEC+ producers would stick to production caps. [O/R]

Some support was provided by lower exports from Russia and Houthi attacks on ships in the Red Sea. rose 47 cents to $77.02 a barrel, while rising 47 cents to $71.90.


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