MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1%, after rising 2% last week
Asian shares were off to a stuttering start on Monday as waning chances for early rate cuts globally soured the mood and Chinese markets returned from holiday with only muted gains.
A holiday for U.S. markets also made for thin trading, while the latest jump in tech stocks is set to be tested by results from Nvidia on Wednesday.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1%, after rising 2% last week.
Japan’s Nikkei slipped 0.3%, having soared over 4% last week to stop just short of its all-time high.
Chinese blue chips edged up 0.3% and Shanghai stocks 0.7%. Investors have been hoping they could extend the 6% rally enjoyed before the break.
There was some promising news that tourism revenues during the Lunar New Year holiday soared 47% on a year earlier as over 61 million rail trips were taken.
The country’s central bank skipped a chance to cut rates again on Sunday, which will possibly 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 US as high readings on producer and consumer prices saw markets steeply scale back pricing for rate cuts.
Bruce Kasman, global head of economics at JPMorgan, cautioned the Fed’s favoured measure of core personal consumption inflation could now climbe by 0.5% in January. Only a week ago, markets were hoping for an increase of just 0.2%.
While it is premature to place significant weight on noisy January data, risks have shifted in the direction that core inflation and labour market conditions both surprise the Federal Reserve in a hawkish direction in the first half of 2024, Kasman stated 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, he added.
Futures have dipped to imply just a 28% probability 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 bps of easing.
