Asian shares recovered from a wobbly start on Tuesday, but remained on track for a monthly loss, while the dollar edged away from recent peaks scaled on expectations the U.S. Federal Reserve will raise interest rates as soon as next month.
European markets are poised for a mixed start, with financial spreadbetters expecting Britain’s FTSE 100 to open down 0.3 per cent lower, France’s CAC to begin the day 0.1 per cent lower and Germany’s DAX to rise 0.1 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.6 per cent, but looked set to end the month down 1.8 per cent on jitters over Fed rate hikes and disappointing data out of China.
Japan’s Nikkei stock index backtracked on earlier losses to end the day up 1 per cent, extending a 1.4 per cent rally in the previous session. It is up 3.4 per cent for May, thanks to a tailwind from a weaker yen.
Data earlier in the session showed Japanese industrial output unexpectedly rose 0.3 per cent in April, suggesting production is holding up despite weak exports and the impact from a series of earthquakes that struck southern Japan during that month.
China’s CSI 300 surged 3 per cent and the Shanghai Composite advanced 2.9 per cent as investors bet that MSCI will add mainland shares to its index for the first time next month. That helped the former erase losses for the month, and the latter to shrink declines to 1.1 per cent.
The positive mood spilled into Hong Kong, boosting the Hang Seng index 1.4 per cent and paring its slide in May to 0.8 per cent.
Underpinning Asian equities, European shares hit one-month highs on Monday amid otherwise light trade with markets in London and New York closed for public holidays.
“The focus will be on U.S. data,” Bernard Aw, market analyst at IG in Singapore, wrote in a note. “Investors will be keen to see if U.S. data this week will corroborate the Fed’s slightly optimistic tone.”
The dollar has surged recently on expectations of higher U.S. rates. Fed Chair Janet Yellen said on Friday that the central bank should hike rates “in the coming months” if economic growth picks up and the labour market continues to improve.
Against that backdrop, the May U.S. private-sector ISM manufacturing data, due on Wednesday, and non-farm payrolls report on Friday will garner even more attention than usual. Solid readings could further heighten expectations for a move as soon as the Federal Reserve’s next policy meeting on June 14-15.
Economists predict the jobs report will show that U.S. employers added 170,000 jobs, slightly more than they did in April. Hourly wages are expected to show a 0.2 per cent increase from the previous month. [ECONUS]
The dollar index, which tracks the greenback against a basket of six rival currencies, gained 0.2 per cent to 95.773, not far from a two-month high of 95.968 and up nearly 2.9 per cent for the month.
Against the yen, the dollar advanced 0.2 per cent to 111.300. But it rose to as high as 111.455 in the previous session, its loftiest peak in a month, and is on track to notch a gain of 4.6 per cent in May.
The euro slipped 0.1 per cent to $1.11255 (£0.76), hovering near a 2-1/2 month low of $1.1097 (£0.76) hit in the previous session. It is set to end the month 2.9 per cent lower.
Moves in crude oil futures were limited ahead of Thursday’s meeting of the Organization of the Petroleum Exporting Countries. Most analysts did not expect any changes in the group’s flat-out production.
There was no Monday settlement for U.S. crude futures because of the U.S. Memorial Day holiday. They were up 0.7 per cent at $49.66 (£33.94) on Tuesday, lifted by the start of the peak demand summer driving season in the U.S. They are set for an 8.2 per cent jump in May.
Brent crude futures were steady at $49.74 (£33.97) a barrel, poised for a gain of 3.4 per cent for the month.
While a softer dollar on Tuesday gave gold a boost, the recent recovery in risk sentiment pushed the precious metal to its biggest monthly decline since November.
Spot gold climbed 0.6 per cent to 1,212.70 per ounce, but was headed for a slide of 6.3 per cent for the month.