(Bloomberg) — European stock futures rose while Asian shares fell, as the double whammy of an upcoming U.S. inflation report and a Federal Reserve decision kept traders on edge.
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Hong Kong's stock index fell more than 1%, with auto stocks leading the decline ahead of the tariff decision in Europe. Stocks also fell in Japan while metrics in India headed to new highs. Euro Stoxx 50 futures rose 0.3% and US stock futures were little changed after the S&P 500 closed at a new high.
The Bloomberg Dollar Strength Index extended its advance to a fifth session, hovering near this year's highest level. Treasuries steadied after rising on a strong $39 billion sell-off, reflecting speculation that Wednesday's inflation reading will help get the Federal Reserve to cut interest rates this year.
“The Fed must gain conviction that inflation is moving firmly toward its target before it lowers it. So more convincing evidence of deflationary trends will likely be needed,” said Naomi Fink, global strategist at Nikko Asset Management. Our view as a company is that the Fed can deliver one rate cut this year.”
In key Asian data, China's consumer price gains remained above zero in May, while factory door prices remained stuck in deflation, fueling concerns about continued weak demand. Separately, the Biden administration is said to be considering further restrictions on China's access to chip technology used in artificial intelligence.
“China markets need a fresh catalyst after the impact of previous measures on sentiment faded, and it appears increasingly difficult for China to announce policy easing while delaying Fed rate cuts.” said Charu Chanana, strategist at Saxo Capital Markets. “Despite continued optimism in the technology sector, markets have turned somewhat cautious ahead of event risks from the US CPI and today's FOMC announcement.”
US monetary policy remains the most important input for traders in Asia even with post-election volatility in India, central banks in Japan and Taiwan preparing to make their interest rate decisions, and various Southeast Asian currencies testing key support levels.
The Fed is widely expected to keep borrowing costs at their highest levels in two decades on Wednesday, but there is less certainty about officials' quarterly interest rate forecasts, known as the “plot point.”
Chetan Seth, a strategist at Nomura Bank, said the outlook “has the potential to be a major market-moving event especially if points show just one rate cut in 2024 instead of two which seems to be the consensus view on the Street.”
The new bullet chart is likely to indicate two 25 basis point cuts this year, compared to three in the March edition, according to Bloomberg Economics. Economists expect the May CPI reading to give the Fed some additional reassurance that inflation is slowing.
In commodities, oil extended its gains after industry data indicated a decline in US crude inventories ahead of a report from the International Energy Agency on the market outlook. Iron ore rose for the first time in three days, rising from the lowest level since April, supported by cautious optimism about signs of recovery in China's property market.
Main events this week:
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German Consumer Price Index, Wednesday
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US Consumer Price Index, Federal Interest Rate Decision, Wednesday
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G7 Leaders Summit, June 13-15
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Industrial production in the eurozone, Thursday
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US Producer Price Index, Initial Jobless Claims, Thursday
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Tesla annual meeting, Thursday
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New York Fed President John Williams moderates a discussion with Treasury Secretary Janet Yellen on Thursday
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Bank of Japan monetary policy decision, Friday
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Chicago Fed President Austin Goolsbee speaks Friday
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Consumer confidence index from the University of Michigan, Friday
Some key movements in the markets:
Stores
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S&P 500 futures were little changed as of 2:02 PM Tokyo time
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Nikkei 225 futures fell 0.7%
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Japan's Topix index fell 0.8%.
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Australia's S&P/ASX 200 index fell 0.6%.
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The Hang Seng Index in Hong Kong fell by 1.4%.
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The Shanghai Composite Index was little changed
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Euro Stoxx 50 futures rose 0.3%
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Nasdaq 100 futures were little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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There was little change in the euro at $1.0737
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There was little change in the Japanese yen at 157.24 to the dollar
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There was little change in the yuan in external transactions at 7.2700 to the dollar
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There was little change in the Australian dollar at 0.6612 US dollars
Digital currencies
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Bitcoin rose 0.2% to $67,414.57
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Ethereum rose 0.8% to $3,516.61
Bonds
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The yield on 10-year Treasury bonds was little changed at 4.41%.
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The yield on 10-year Japanese bonds fell by 2.5 basis points to 0.995%.
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The Australian 10-year bond yield fell two basis points to 4.31%.
Goods
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West Texas Intermediate crude rose 0.6% to $78.35 a barrel
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Gold in spot transactions fell 0.2 percent to $2,313.12 per ounce
This story was produced with assistance from Bloomberg Automation.
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