Asia cheers Chinese data, as central banks line up
SYDNEY — Asian shares firmed on Monday as Chinese data surprised on the upside for once, while investors looked to navigate a minefield of central bank meetings this week that could see the end of free money in Japan and a slower glide path for US rate cuts.
Beijing reported industrial output climbed an annual 7% over January and February, while retail sales rose 5.5% on a year earlier. But real estate remained a worry as property investment fell 9% on the year, underlining the case for further policy support.
Central banks in the United States, Japan, UK, Switzerland, Norway, Australia, Indonesia, Taiwan, Turkey, Brazil, and Mexico all meet this week and, while many are expected to hold steady, there is plenty of scope for surprises.
Tuesday could see the end of an era as the Bank of Japan (BoJ) is widely tipped to end eight years of negative interest rates and cease or amend its yield curve control policy.
The Nikkei newspaper on Saturday became just the latest media outlet to flag the move, after major companies granted the biggest pay hikes in 33 years.
There is a chance the BoJ might wait for its April meeting given it will be issuing updated economic forecasts then.
“Whether or not it is March or April, we suspect the language accompanying any such move will carry a cautious tone, emphasizing it more as a monetary policy adjustment rather than a tightening at this stage,” said Carl Ang, a fixed income analyst at MFS Investment Management.
“For Japan a measured and gradual path of policy normalization appears appropriate for an economy unaccustomed to higher rates and thus the policy messaging will be critical.”
The central bank on Monday said it would conduct an unscheduled operation to buy bonds, presumably to head off any significant rise in yields and avoid market volatility.
That might be one reason the yen actually lost ground last week, with the dollar up at ¥149.10. The euro stood at $1.0887, having eased 0.5% last week and away from a top of $1.0963.
Japan’s Nikkei bounced more than 2%, having shed 2.4% last week as a run up to record highs drew some profit taking.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.3%, after dipping 0.7% last week. Chinese blue chips firmed 0.6%.
EUROSTOXX 50 futures and FTSE futures both edged up 0.16% and 0.1%, respectively. S&P 500 futures added 0.3% and Nasdaq futures 10.54%, with tension building ahead of the US Federal Reserve policy meeting in Tuesday and Wednesday.
The Fed is considered certain to keep rates at 5.25-5.5%, but there is a possibility it might signal a higher for longer outlook on policy given the stickiness of inflation at both a consumer and producer level.
He still expects the Fed will start in June, assuming inflation eases again as expected, and officials will stick with their dot plot forecasts of three cuts this year.