Asian stocks brace for BOJ meeting, US inflation test Reuters


© Reuters. FILE PHOTO: The Japanese national flag is raised at the Bank of Japan headquarters in Tokyo, Japan September 20, 2023. REUTERS/Issei Kato/File Photo

By Wayne Cole

SYDNEY (Reuters) – Asian shares got off to a cautious start on Monday, in a week where Japan’s central bank could move further away from its uber-easy policies, while key U.S. inflation data is expected to support market pricing of interest rate cuts there.

The Bank of Japan (BOJ) met on Tuesday amid much talk that it is considering how and when to retreat from negative interest rates. None of the analysts polled by Reuters expected a definitive move at the meeting, but politicians could begin to lay the groundwork for a possible shift.

April was favored by 17 out of 28 economists as the start of the end of negative rates, making the BOJ one of the few central banks in the world to actually tighten.

“Since the last meeting in October, 10-year JGB yields have fallen and only strengthened, giving the BOJ little incentive to revise policy at this stage,” said Barclays economist Christian Keller.

“We believe the BOJ will wait for confirmation of the outcome of the ‘shunto’ wage negotiations next spring before moving in April.”

was down 0.8% in early trade, partly weighed by a stronger yen. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%.

South Korea’s main index was flat, showing no apparent reaction to news that North Korea had fired a ballistic missile from its east coast.

rose 0.1%, while Nasdaq futures were almost flat.

In the United States, analysts expect the core personal consumption expenditures (PCE) index to rise 0.2% in November, with the annual inflation rate slowing to the lowest since mid-2021 at 3.4%.

Analysts believe the balance of risks is on the downside, and a 0.1% month-on-month increase would slow the six-month annualized rate of inflation to just 2.1% and close to the Federal Reserve’s 2% target.

Markets are anticipating a slowdown in inflation, meaning the Fed will need to ease policy just to stop real rates rising, and are betting on early and aggressive action.

New York Fed President John Williams tried to add to the parade on Friday by saying policymakers weren’t talking about easing, but markets weren’t willing to listen.

MARCH MADNESS

Two-year Treasury yields rose only slightly in response, finishing the week up a steep 28 basis points, the lowest end since mid-May.

The 10-year yield was at 3.93%, having fallen 33 basis points last week in the biggest weekly drop since the start of 2020.

Fed funds futures imply a 70% chance of a rate cut as early as March, while May has a 39 basis point (bp) cut. The market also expects a reduction of at least 140 basis points for the full year 2024.

“We now forecast three consecutive cuts of 25 basis points in March, May and June, followed by a slower pace of one cut per quarter until we reach a final rate of 3.25-3.5%, which is 25bp lower than we previously expected,” analysts at Goldman Sachs wrote. in the client’s note.

“That means five cuts in 2024 and three more cuts in 2025.”

If correct, such easing would allow some Asian central banks to ease earlier, with Goldman introducing cuts in India, Taiwan, Indonesia and the Philippines.

The investment bank also raised its forecast for which it now sees a 2024 end of 5,100, while slowing inflation and Fed easing would keep real yields low and support a price-to-earnings multiple of more than 19.

The market’s dovish outlook for US rates saw the dollar fall 1.3% against a basket of currencies last week, although the Fed is not alone in its rate-cutting bets.

Markets are pointing to around 150 basis points of easing by the European Central Bank next year and 113 basis points of tapering by the Bank of England.

That outlook capped the euro at $1.0894, having retreated from a peak of $1.1004 on Friday. The dollar looked more vulnerable to the yen at 142.40, having fallen 1.9% last week.

The decline in the dollar and yields should be positive for gold at $2,016 an ounce, although it was short of its recent all-time high of $2,135.40. (GOAL/)

Oil prices struggled to stabilize after hitting a five-month low last week amid doubts that all OPEC+ producers will stick to production limits. (OR)

It gained 72 cents to $77.27 a barrel, while it rose 68 cents to $72.11 a barrel.