Asian markets off to a slow start in central bank packed week

SYDNEY – Asian stocks got off to a cautious start Monday in a week packed with central bank meetings including the Federal Reserve and the Bank of Japan, which will be closely scrutinized for the global interest rate outlook.

S&P 500 and Nasdaq futures rose 0.2 percent in early Asia trading.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1 percent after gaining 1.2 percent last week. The Nikkei in Japan is closed for a public holiday.

Confidence in Asia improved recently after news of increased policy support from Beijing and better-than-expected Chinese data added to signs that the slowdown in the world’s second-largest economy may have passed its worst level .

READ: China: industrial production and retail sales growth in August above expectations

However, tensions in the real estate sector persisted, with fears that they could spill over into the financial system. Troubled Chinese trust company Zhongrong International Trust Co said it was unable to make payments on some trust products on time.

This week, global central banks will take center stage, with five of those overseeing the 10 most traded currencies – including the US Federal Reserve – holding rate-setting meetings, along with a number of banks from the Emerging Markets.

Markets are anticipating a pause from the Fed on Wednesday, so the focus will be on updated economic and rate projections, as well as what Chairman Jerome Powell says about the future. They forecast cuts of around 80 basis points next year.

READ: Traders bet Fed rate hikes are over and cuts will begin in 2024

“In theory, the FOMC meeting should be a low-volatility affair, but it’s a risk that needs to be managed,” said Chris Weston, head of research at Pepperstone.

“We should see the median projection for the federal funds rate for 2023 remaining at 5.6%, providing the bank with the flexibility to raise it again in November, if the data warrants it.”

Weston added that if the Fed revises its 2024 rate projections upward, it would result in a rate cut, leading to renewed interest in the U.S. dollar and downward pressure on stocks.

On Thursday, the Bank of England is expected to raise rates for the 15th time and bring benchmark borrowing costs to 5.5 percent, while Sweden’s Riksbank is expected to rise 25 basis points to 4 percent.

The Bank of Japan is Friday’s key risk event. Markets are looking for any signs that the BOJ may move away from its ultra-accommodative policy more quickly than previously thought, after recent comments from Governor Kazuo Ueda sent yields higher.

Wall Street finished sharply lower on Friday as labor unrest in the United States weighed on auto stocks and chipmakers fell on concerns about weak consumer demand. Rising Treasury yields have also put pressure on Amazon and other mega-cap growth companies.

Treasuries were not traded in Asia after the Tokyo shutdown. Treasury yields rose slightly on Friday, with two-year bonds above the 5 percent threshold, as futures priced in higher rates for longer ahead of the Fed’s policy meeting this week.

In foreign exchange markets, the US dollar remained strong near its half-year high at 105.23 against a basket of major currencies.

The euro recovered 0.1% to $1.0068 in early Asian trading, after falling to a 3-1/2 month low of $1.0629 last week as the European Central Bank reported that its rate hikes could be over.

Oil prices were rising on Monday, after hitting a 10-month high last Friday, stoking inflationary pressures. Brent crude futures rose 0.1 percent to $94.01 a barrel and U.S. West Texas Intermediate crude futures rose 0.2 percent to $90.97.

The price of gold remained stable at $1,923.33 per ounce.

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