Asia Shares Rebound Amid Hopes for Dovish Fed Guidance

 

Asian shares saw a bounce on Monday, anticipating a week filled with earnings reports and central bank meetings that may hint at easing by the US and UK, while Japan could signal a move towards higher borrowing costs. Key economic reports, including the US jobs report for July and eurozone GDP and inflation data, are also expected.

Key Highlights:

1. Market Movements:

   • MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4%, recovering from a 2% loss last week.
   • Japan's Nikkei rebounded by 2.2%, following a stronger finish on Wall Street.
   • S&P 500 futures added 0.4%, while Nasdaq futures rose 0.6%.

2. Earnings Reports:

   • Around 40% of the S&P 500 by market value will report earnings this week, including major tech companies like Microsoft, Apple, Amazon.com, and Meta Platforms.
   • High expectations mean any disappointment could impact the tech sector and promote volatility.

3. Central Bank Meetings:

   • Federal Reserve (Fed): Markets expect the Fed to hint at a September rate cut during its Wednesday meeting. Futures are fully priced for a quarter-point cut and imply a 12% chance of a 50-basis-point cut, with 68 basis points of easing expected by Christmas.
   • Bank of Japan (BOJ): Markets imply a 70% chance of a 10-basis-point rate hike to 0.2%, with some possibility of a 15-basis-point move.
   • Bank of England (BOE): Investors are less certain about easing, with futures showing a 51% probability of a cut to 5% at its Thursday meeting.

4. Currency and Commodity Markets:

   • The Japanese yen slightly retreated, with the dollar inching up to ¥154.15 from last week's low of 151.93.
   • The euro remained flat at US$1.0855.
   • Gold firmed by 0.5% to US$2,398 an ounce, supported by dovish Fed expectations.
   • Oil prices edged up: Brent rose 20 cents to US$81.33 a barrel, and US crude increased by six cents to US$77.22 per barrel.

5. Economic Data:

   • The US Treasury will outline bond sales plans for the quarter.
   • China’s politburo meeting could introduce more stimulus following last week's surprise rate cuts.
   • Upcoming economic reports include US jobs for July, US and global manufacturing surveys, and eurozone GDP and inflation data.

Market Sentiment: Investors are closely monitoring central bank meetings for signals on monetary policy direction. The anticipation of potential easing by the Fed and other central banks has bolstered market sentiment, leading to gains in Asian shares and other assets. The focus on major tech earnings and economic data releases will likely drive market movements throughout the week.