SYDNEY- Asian shares struggled for traction and the dollar was subdued as the market focuses on the probability of a less aggressive Federal Reserve at its policy meeting which concludes on Wednesday.
The Fed is widely expected to hold off on raising rates after a softer US inflation report and investors’ cautious mood is likely to extend to Europe when markets open.
The pan-regional Euro Stoxx 50 futures is down 0.2 percent. Both S&P 500 futures and Nasdaq futures were flat, after US stocks rallied to 14-month highs overnight.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan . were last 0.2 percent lower, after surging 1.1 percent in the prior session to the highest in two months.
Tokyo’s Nikkei however, continued to outperform, jumping 1.6 percent to a fresh 33-year high, as investor cheered the return of inflation amid the accommodative policy stance from the Bank of Japan.
Chinese blue chips rose 0.2 percent, marking the fifth straight session of gains and pulling away from 2023 lows, on hopes for more economic stimulus. Hong Kong’s Hang Seng index was, however, 0.4 percent lower amid concerns about whether the stimulus would be enough to revive a faltering economy.
Analysts polled by Reuters expect China’s central bank to cut the borrowing cost of medium-term policy loans for the first time in 10 months on Thursday, following a reduction in a short-term policy rate.
Overnight, the much-watched US CPI report showed prices barely rose in May, with just a 0.1 percent increase from the prior month. On an annual basis, consumer prices rose 4 percent, the smallest in more than two years, slowing from April’s 4.9 percent.
That led traders to firm up expectations of a rate pause by the Fed to 94 percent when it concludes a two-day policy meeting on Wednesday, but they are also bracing for the possibility of a hawkish surprise, with a 60 percent probability priced in for a hike in July, according to CME FedWatch Tool.
“While the soft headline inflation print gives the Fed the go-ahead to pause its rate hiking cycle on Thursday, sticky core inflation will keep the Fed’s hawkish trigger finger hovering over the rate hike button in the months ahead,” said Tony Sycamore, a market analyst at IG.
