MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.3%, after climbing 0.8% last week
Asian stocks wavered and the dollar slid on Monday in a week that is almost certain to see the start of an easing cycle in the US with investors flirting with the possibility of an outsized move.
Central banks in Japan and the UK also meet this week, with both expected to stand pat for now, while a tight data schedule includes U.S. retail sales and industrial production.
Holidays in China, Japan, South Korea and Indonesia made for thin trading and early moves were modest. MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.3%, after climbing 0.8% last week.
Japan’s Nikkei was closed but futures traded at 36,315 compared to a cash close of 36,581 as recent yen gains pressured exporters. S&P 500 futures were little changed, while Nasdaq futures slipped 0.1%.
EUROSTOXX 50 futures gained 0.2% and FTSE futures 0.1%. DAX futures also firmed 0.1%.
Economic data from China over the weekend disappointed as industrial output growth declined to a five-month low in August, while retail sales and new home prices weakened further.
The data bolsters the case for additional economic stimulus by year-end if China wants to achieve its target of almost 5% growth in 2024, according to Vivek Dhar, a mining & energy analyst at CBA.
We think policymakers will look to boost central government spending on infrastructure projects if both China’s property and infrastructure sectors drop again in September, he said.
As for the Fed, futures rallied early to push the possibility of a half-point cut to 59%, against 30% a week ago. The odds have narrowed sharply after media reports revived the prospect of a more aggressive easing.
We agree it is likely to be a close call, but we also believe the Federal Reserve will make the ‘right’ move and go 50 basis point, according to JPMorgan economist Michael Feroli.
The case for a 50 basis point cut seems clear to us: various iterations of a Taylor Rule imply policy is currently a full percentage point or more too restrictive, he said.
If the Fed does go by half a point, Feroli expects policy makers to also project 100 bps of cuts this year and 150 bps for 2025.
The market has 114 bps of easing priced in by Christmas and another 142 bps for next year.
