Asian shares found themselves in a cautious trading phase on Monday as investors braced themselves for crucial central bank decisions scheduled in Europe, Japan, and the United States this week.
Alongside these decisions, the release of U.S. inflation data holds significant influence over the monetary policy decisions of the Federal Reserve.
The broadest index of Asia-Pacific shares, excluding Japan, experienced a slight uptick of 0.07%, reaching 521.24.
Earlier in the session, it had even touched a one-month peak of 521.94.
This positive trend contributed to the index’s overall 4% increase for the month. Meanwhile, Japan’s Nikkei index rose by 0.41%, while Australia’s market remained closed.
Looking ahead, futures signaled a promising start for European stocks, with Eurostoxx 50 futures rising by 0.35%, German DAX futures increasing by 0.34%, and FTSE futures gaining 0.40%.
Additionally, E-mini futures for the S&P 500 witnessed a rise of 0.13%.
The Reserve Bank of Australia and the Bank of Canada surprised markets last week by increasing interest rates in an effort to curb persistent inflation. This unexpected move raised concerns among investors that the Federal Reserve might follow suit and adopt a similarly hawkish stance during its June meeting.
Experts at Citi pointed out that the Federal Reserve could learn from the experiences of other central banks, such as the Bank of Canada, which have realized the need for further tightening measures to achieve the desired 2% inflation target.
Currently, market expectations indicate a 71% probability that the U.S. central bank will maintain the status quo during its meeting scheduled for June 13-14, according to the CME FedWatch tool.
The decision to either pursue a 25 basis point hike or maintain rates will likely depend on the release of the Consumer Price Index (CPI) data on Tuesday.
Citi analysts believe that a 25-basis point hike by the Fed is probable, as it represents the most straightforward action to acknowledge that rates should be higher.
While uncertainty persists among investors regarding the Federal Reserve’s upcoming decision, they are more confident in predicting the European Central Bank’s (ECB) course of action during its meeting on Thursday.
The prevailing sentiment suggests that the ECB will raise rates and maintain a hawkish stance.
Mohit Kumar, economist for Europe at Jefferies, anticipates that ECB President Lagarde will adopt a hawkish stance on inflation, emphasizing the need for further action to address inflation concerns.
Kumar expects the ECB to raise interest rates by 25 basis points and doubts that Lagarde will hint at a potential pause after July, contrary to the market’s current expectations.
Meanwhile, in China, the Shanghai Composite Index observed a decline of 0.3%, while Hong Kong’s Hang Seng Index slid by 0.45%.
The Chinese economy’s sluggish post-COVID-19 recovery continues to weigh on stocks, with investors eagerly awaiting additional policy stimulus to counter the negative impact of weak manufacturing and export data on this year’s economic outlook.
Following lower-than-anticipated inflation figures in May, investors will closely monitor the release of credit lending, retail sales, and industrial output data in China this week, which may fall short of initial forecasts.
Attention is also focused on the People’s Bank of China (PBOC) as it prepares to roll over 200 billion yuan ($28.00 billion) worth of medium-term policy loans maturing on Thursday.
The rate at which these loans are rolled over is a critical factor, and the possibility of a recession, the banks have to act quick as possible.
In addition to the central bank decisions and inflation data, market participants are closely monitoring global trade tensions and geopolitical developments, which have the potential to further impact the monetary policies and investment sentiments in the Asia-Pacific region and beyond.