MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.17 per cent to 519.96, having reached a more than one-month high of 521.94 earlier during the session
Asian shares began tentatively on Monday as investors prepared for central bank meetings in Europe, Japan and the US this week, in addition to U.S. inflation figures that will possibly affect the Fed’s monetary policy.
MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.17 per cent to 519.96, having reached a more than one-month high of 521.94 earlier during the session. The index is 4 per cent higher for the month. Japan’s Nikkei added 0.7 per cent, while E-mini futures for the S&P 500 gained 0.15 per cent.
China stocks lost 0.01 per cent, while Hong Kong’s Hang Seng Index opened 0.3 per cent higher. China’s stumbling post-COVID economic recovery has weighed on stocks, with investors placing their expectations on further policy stimulus as weak manufacturing and exports hurt the wider outlook this year.
During the past week, the Reserve Bank of Australia and Bank of Canada surprised markets by raising interest rates to control stubborn inflation, fuelling concerns that the Federal Reserve might follow suit and take a hawkish stand in its June meeting.
Citi strategists said the Fed could be faced with the lesson that other central banks such as the Bank of Canada have learned – further tightening is still required to bring inflation to 2 per cent.
Markets are pricing for a 71 per cent possibility the U.S. central bank will hold out when it meets on June 13-14, as per CME FedWatch tool.
It is a close call between a 25 bps raise or a ‘skip’, and will come down to CPI on Tuesday, Citi said in a note.
Citi anticipates a 25 bps hike from the Fed. The most straightforward action to take when admitting rates should be higher is to raise rates.
While doubts continue among investors which path the Federal Reserve will take this week, they are more certain the ECB, which meets on Thursday, will hike rates and continue to be hawkish.
