SYDNEY- Asian share markets edged cautiously higher on Monday as investors looked ahead to a key reading on US inflation and the start of another corporate earnings season.
Chinese consumer price figures surprised on the soft side with inflation falling in June and essentially unchanged from a year before.
The miss implies there is plenty of scope to ease monetary policy further, but also underlines the challenge Beijing faces in reflating its economy and avoiding a deflationary spiral.
The yuan pared early gains on the news, though Chinese blue chips were still up 0.7 percent on hopes for a loosening in regulations for the tech sector. Shares in Hong Kong’s Alibaba Group also joined the rally.
The gains in China helped MSCI’s broadest index of Asia-Pacific shares outside Japan firm 0.6 percent. Japan’s Nikkei eased 0.7 percent in the wake of a higher yen, while South Korea added 0.2 percent.
EUROSTOXX 50 futures dipped 0.1 percent while FTSE futures held steady. S&P 500 futures and Nasdaq futures both dipped 0.2 percent, adding to last week’s losses.
Earnings season starts later this week with JPMorgan Chase Citigroup Wells Fargo State Street and PepsiCo among the names reporting.
“Consensus expects a 9 percent year/year decline in S&P 500 EPS driven by flat sales growth and margin compression,” noted analysts at Goldman Sachs.
“We expect companies will be able to meet the low bar set by consensus,” they added.
“Negative EPS revisions for 2023 and 2024 appear to have bottomed and revision sentiment has improved.”
This week also has major data on US consumer prices which is forecast to show headline inflation slowed to its lowest level since early 2021 at 3.1 percent, with the core easing to 5.0 percent.
Markets still think the Federal Reserve is likely to hike rates later this month, but a weak CPI might lessen the risk of yet a further move in September.
Currently futures imply around a 90 percent probability of a rise to 5.25-5.5 percent this month, and a 24 percent chance of a move in September.
Fed officials have been mostly hawkish in their communications, while markets have also priced in higher rates in Europe and the UK. Canada’s central bank meets this week and markets imply a 67 percent chance of another hike. – Reuters
