By Wayne Cole
SYDNEY (Reuters) – Asian shares rose on Monday in a busy week of earnings and three central bank meetings that could see the United States and the United Kingdom open the door to monetary easing while Japan could raise borrowing costs in a move toward “normalcy.”
Oil prices rose amid fears of a widening conflict in the Middle East following a rocket attack on the Israeli-occupied Golan Heights, which Israel and the United States blamed on the Lebanese militant group Hezbollah. (O/R)
Also due this week is the US jobs report for July, along with closely watched surveys on US and global manufacturing, as well as GDP and inflation data from the eurozone.
The US Treasury will set out how much bonds it plans to sell during the quarter, while China’s politburo meeting could unveil more stimulus after last week’s surprise interest rate cuts.
After the benign inflation report in June, markets are betting that the Federal Reserve will lay the groundwork for a September interest rate cut at its monetary policy meeting on Wednesday.
Futures are fully priced in for a quarter point easing, with a 12% chance of a 50 basis point easing, and 68 basis points of easing are priced in by Christmas.
“The FOMC is set to hold rates steady but will likely revise its statement to signal that a rate cut at the next meeting in September has become more likely,” Goldman Sachs analysts wrote in a note.
“We now see the risks to the Fed’s path skewed slightly to the downside from our baseline of quarterly rate cuts, albeit not as much as market pricing suggests.”
The Bank of Japan also meets on Wednesday and markets are pricing in a 70% chance of a 10 basis point rate hike to 0.2%, with some chance of a 15 basis point move.
Investors are becoming less certain about whether the Bank of England will ease interest rates at its meeting on Thursday, with futures showing a 51% chance of a cut to 5%.
Profit Test
The prospect of higher borrowing costs in Japan has been a drag on the benchmark Nikkei, which lost 6% last week as the yen strengthened. Early Monday, the index managed to recover 2.2%, after a strong close on Wall Street.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%, after losing 2% last week.
China’s blue chips fell 0.9%, having so far found little support from recent interest rate cuts.
Euro Stoxx 50 futures rose 0.6% and 0.5%, respectively. The index added 0.4%, while Nasdaq futures rose 0.6%.
About 40% of the companies listed on the New York Stock Exchange by market value are down this week, including tech companies Microsoft (NASDAQ:), Apple (NASDAQ:), Amazon (NASDAQ:), and Facebook parent Meta Platforms (NASDAQ:).
Expectations are high, so any sign of disappointment will test these companies’ very high valuations.
“With some of the big moves implied in the options market for individual names on reporting day, the stock-level movement could reverberate across other plays within its sector and could boost volatility,” said Chris Weston, head of research at brokerage Pepperstone.
“Corporate earnings don’t come much bigger than Microsoft’s, with options indicating a 4.7% move (up or down) — and Tuesday’s after-market session could be active.”
In currency markets, the Japanese yen gave up some of its recent gains as the dollar rose to 154.15 yen from last week’s low of 151.93.
The euro settled at $1.0855, after finding support at around $1.0825 last week.
In commodity markets, gold rose 0.5% to $2,398 an ounce, supported by the possibility of the Federal Reserve adopting an accommodative policy.
Oil prices rose in early trading on Middle East news, but quickly turned mixed amid ongoing concerns over Chinese demand.
The price of a barrel of Brent crude oil rose 4 cents to $81.17, while it fell 7 cents to $77.09.
