SYDNEY- Asian shares struggled to make much ground on Monday as fading chances for early rate cuts globally soured the mood and Chinese markets returned from holiday with only muted gains.
A holiday for US markets also made for thin trading, while the latest surge in tech stocks is set to be tested by results from AI diva Nvidia on Wednesday.
MSCI’s broadest index of Asia-Pacific shares outside Japan was flat, after bouncing 2 percent last week.
Japan’s Nikkei dipped 0.1 percent , having surged more than 4 percent last week to stop just short of its all-time high.
EUROSTOXX 50 futures also eased 0.3 percent and FTSE futures lost 0.2 percent .
Chinese blue chips inched up 0.66 percent and Shanghai stocks 0.85 percent . Investors have been hoping they could extend the 6 percent rally enjoyed before the break.
There was some promising news that tourism revenues during the Lunar New Year holiday surged by 47 percent on a year earlier as more than 61 million rail trips were taken.
The country’s central bank skipped a chance to cut rates again on Sunday, which will likely limit downward pressure on the yuan, but with deflation looming analysts see plenty of scope for further policy stimulus.
The same cannot be said for the United States as high readings on producer and consumer prices saw markets sharply scale back pricing for rate cuts.
Bruce Kasman, global head of economics at JPMorgan, warned the Federal Reserve’s favored measure of core personal consumption inflation could now jump by 0.5 percent in January. Only a week ago, markets were hoping for a rise of just 0.2 percent .
“While it is premature to place significant weight on noisy January data, risks have shifted in the direction that core inflation and labor market conditions both surprise the Fed in a hawkish direction in the first half of 2024,” Kasman wrote in a note.
“This stall has been expected to delay the start of the developed world easing cycle to midyear, and curb enthusiasm about the overall magnitude of the easing cycle ahead.”
Futures have sunk to imply just a 28 percent chance rates will be cut in May, when it was considered a done deal a couple of weeks ago. Markets have taken out two quarter point rate cuts for this year to imply less than 100 basis points of easing. – Reuters
