Asia stocks touch 15-month top, wary of US inflation
Asian shares eked out a 15-month high yesterday in a week where inflation figures could make or break hopes for earlier US rate cuts, while Chinese activity data will test optimism about a sustained recovery in the world's No. 2 economy.
Beijing has already reported a welcome pickup in inflation to an annual 0.3 per cent in April, helping to soothe worries about a slide into prolonged deflation. Forecasts favour further gains in April retail sales and industrial output due on Friday.
Chinese authorities are also set to sell one trillion yuan (US$138.24 billion) in longer-dated bonds to help fund stimulus spending at home. The improved sentiment has helped lift Chinese blue chips to a seven-month high. The index was 0.1 per cent softer yesterday with some sectors pressured by reports the White House was about to release details of new tariffs on Chinese goods.
MSCI'S broadest index of Asia-pacific shares outside Japan edged up 0.1 per cent, after rallying for three weeks straight.
Japan's Nikkei slipped 0.3 per cent, still saddled with speculation further losses for the yen could lead the Bank of Japan to raise rates in the next few months.
The central bank sent a hawkish signal to markets yesterday by cutting the amount of Japanese government bonds it offered to buy in a regular operation, pushing yields up.
Globally, much now depends on whether the US April inflation report will show a moderation after three months of upside surprises. Median forecasts are for core consumer prices to rise 0.3 per cent in the month, compared with 0.4 per cent in March, pulling the annual rate down to 3.6 per cent.
So crucial is the data that rounding to the second decimal place could make all the difference.
"Our unrounded core CPI forecast at 0.27 per cent m/m suggests larger risks for a dovish surprise to a rounded 0.2 per cent increase," noted analysts at TD Securities.
A low number would likely boost bets the Federal Reserve could ease as soon as July, which is currently priced at only a 25 per cent chance. Equally, a high inflation print could push a rate cut out past September and challenge pricing for 42 basis points of easing this year.
Also due are figures on US producer prices, retail sales and jobless claims, along with final reports on European inflation that should reinforce expectations for a June rate cut from the European Central Bank.
There are a host of Fed speakers this week to update markets on their thinking, including Fed Chair Jerome Powell who appears with the head of the Dutch central bank on Tuesday.
EUROSTOXX 50 futures added 0.1 per cent, while FTSE futures dipped 0.2 per cent. S&P 500 futures and Nasdaq futures were both up around 0.1 per cent, after rallying last week as company earnings came in strong.
With 80 per cent of the S&P 500 having reported results, companies are on track to have increased earnings by 7.8 per cent, well ahead of the April expectation of 5.1 per cent.
Once Nvidia reports on May 22, quarterly earnings from so-called Magnificent Seven firms are on track to jump 49 per cent, according to Tajinder Dhillon, senior research analyst at LSEG.
Companies reporting this week include Walmart, Home Depot and Cisco.
Global share indices have also bounced to record highs in recent weeks, even as markets scale back some of their more aggressive wagers for rate cuts this year.
The dollar was holding at 155.82 yen yesterday, while the euro was flat at $1.0770 having faced resistance around $1.0791 last week.