Asian stocks starting slow, keeping an eye on China stimulus and Powell testimonies

Asian shares cautiously started the week after their best weekly performance in five months. Investors are waiting for China’s rate decision and U.S. Federal Reserve Chair Jerome Powell’s testimonies for guidance on future rate movements.

S&P 500 futures rose 0.1% in Asia, while Nasdaq futures increased by 0.3%. Cash U.S. Treasuries were untraded due to the Juneteenth holiday, but futures were slightly up.

Japan’s Nikkei fell 0.5% after reaching a three-decade high on Friday, supported by the Bank of Japan’s decision to maintain its ultra-easy policy setting, causing the yen to weaken against the U.S. dollar.

MSCI’s broadest index of Asia-Pacific shares, excluding Japan, was down 0.1% after reaching a four-month high on Friday and recording a 3% gain for the week, the best performance since January.

China is expected to introduce more aggressive stimulus measures after the cabinet meeting on Friday discussed ways to boost economic growth. The People’s Bank of China is likely to cut its benchmark loan prime interest rates on Tuesday, following a similar reduction in medium-term policy loans last week.

Morgan Stanley’s chief China economist Robin Xing predicts a stimulus package soon as second-quarter GDP growth is projected to be 0%, falling short of the government’s target of around 5% for the year. Xing believes that more policy easing is needed to stabilize investment, which is the main drag on GDP growth, and prevent weakness from affecting household sentiment and services.

Following the Fed’s decision to hold off on a rate hike in June, investors are now focusing on a number of Fed speakers this week, with Powell scheduled to deliver congressional testimonies on Wednesday and Thursday.

Ray Attrill, head of foreign exchange strategy at National Australia Bank, says Powell’s testimonies will provide insight on whether the July FOMC meeting is truly live and if the Fed’s projection of two more rate hikes is a realistic expectation based on data or simply an aspiration.

Market expectations currently indicate a 70% probability of a quarter point rate hike by the Fed in July, followed by a period of no change for the rest of the year. However, officials have adopted a more hawkish tone, and the dot plot suggests two more hikes.

The dollar index remained relatively unchanged against major currencies on Monday, after experiencing a 1.2% decline the previous week.

The yen weakened against the dollar, reaching a seven-month low of 141.90, due to the dovish stance of the Bank of Japan. On the other hand, the euro remained strong, hovering close to a five-week high at $1.094, supported by a hawkish European Central Bank, which raised rates by a quarter point last week.

Oil prices dropped at the start of the week with U.S. crude futures falling 0.7% to $71.24 per barrel and Brent crude down 0.8% at $76.98 per barrel.

Gold prices remained flat at $1,956.84 per ounce.

 

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