Asian shares rebounded on Monday ahead of a busy week filled with earnings reports and pivotal central bank meetings. The United States and the United Kingdom could signal easing measures, while Japan might increase borrowing costs in a move towards “normality.”
Oil prices edged up amid concerns over escalating conflict in the Middle East after a rocket strike in the Israeli-occupied Golan Heights, which Israel and the United States attributed to Hezbollah, a Lebanese armed group.
This week will also see the release of the US jobs report for July, key surveys on US and global manufacturing, and data on the Eurozone’s gross domestic product and inflation.
The US Treasury is set to announce its bond sale plans for the quarter, while China’s politburo meeting might unveil additional stimulus following last week’s unexpected rate cuts.
After a moderate June inflation report, markets are betting the Federal Reserve will set the stage for a potential rate cut in September during its policy meeting on Wednesday. Futures markets are fully pricing in a quarter-point easing and suggest a 12% chance of a 50 basis points cut, with 68 basis points of easing anticipated by year-end.
Analysts at Goldman Sachs noted, “The FOMC is expected to hold steady but will likely hint at a possible rate cut in September. We see a slight downside risk to the Fed’s path, though not as much as market pricing suggests.”
The Bank of Japan’s meeting on Wednesday has markets implying a 70% chance of a rate hike by 10 basis points to 0.2%, with a possibility of a 15 basis points increase. Investors are uncertain if the Bank of England will ease rates at its meeting on Thursday, with futures showing a 51% probability of a cut to 5%.
Earnings Test
The prospect of higher borrowing costs in Japan pressured the Nikkei, which dropped 6% last week as the yen strengthened. However, the index bounced back 2.4% early Monday following a stronger finish on Wall Street.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.9% after a 2% decline last week. Chinese blue chips slipped 0.9%, showing limited response to recent rate cuts.
EUROSTOXX 50 futures climbed 0.5%, FTSE futures 0.4%, S&P 500 futures 0.4%, and Nasdaq futures 0.7%.
About 40% of the S&P 500 by market value is reporting this week, including tech giants Microsoft, Apple, Amazon.com, and Meta Platforms. High expectations mean any hint of disappointment could impact the lofty valuations of these mega-cap stocks.
Chris Weston, head of research at broker Pepperstone, commented, “Significant moves are expected for individual stocks on reporting day, which could cause volatility across their sectors.”
In currency markets, the Japanese yen continued its rally, with the dollar slipping to 153.40 yen, nearing last week’s low of 151.93. The euro remained steady at $1.0858.
In commodities, gold firmed 0.4% to $2,394 an ounce, buoyed by the possibility of a dovish Fed. Oil prices inched up on Middle East tensions, though concerns about Chinese demand persisted. Brent crude gained 31 cents to $81.44 a barrel, while US crude rose 22 cents to $77.38 per barrel.
