Monday's opening of Asian shares was cautious ahead of a busy week that included five central bank conferences and reports on American inflation that could either make or break the market's expectations for an early and furious round of rate cuts in 2024.
Investors have already lowered their expectations for a March Federal Reserve cut as a result of an optimistic payrolls report; however, May is still priced at a 76% chance.
With the emphasis being on Chair Jerome Powell's news conference and the "dot plots" for rates, it is expected that the Fed will maintain rates at 5.25–5.50% this week.
The outlook will also be influenced by Tuesday's consumer price data for November, which is expected to show a 0.3% increase in the core and an unchanged headline rate, according to analysts.
According to John Briggs, the global director of strategy at NatWest Markets, they are waiting for yet another Fed-friendly CPI report and anticipate that unless there are major surprises, we expect the policy statement to convey that the economy has not changed sufficiently for officials to abandon their tightening bias at this point.
They believe that Powell will keep the door open for a potential hike, but they also noted that chances are quite low that the Fed will follow through. In addition, they anticipate that the BoE will keep opposing market pricing of cuts during the first half of 2024 while the ECB cuts early.
On Thursday, the Bank of England, the European Central Bank, the Bank of Norway, and the Swiss National Bank will all meet; only Norway is regarded as a potential hiker. Additionally, there's a chance that the SNB will experiment with more interventions to devalue the franc.
Given the significant implications of the results, investors were undoubtedly cautious, and MSCI's largest index of Asia-Pacific stocks outside of Japan decreased by 0.08%.
After falling 3.4% the previous week on rumors of an end to the ultra-easy monetary policy, Japan's Nikkei gained 1.2%. Futures on the Nasdaq and S&P 500 saw minimal changes.
Data indicates that consumer prices in China dropped 0.5% in November, the biggest decline since late 2020, which puts Chinese markets at risk of experiencing another challenging week.
The $108 billion in fresh supply of 3-, 10-, and 30-year paper presents a test for the Treasury market. Even though they ended the week flat, yields on 10-year bonds remained stable at 4.24% after rising on Friday in response to the jobs report.
After some erratic swings, the yen became the focus of attention on the currency markets as rumors circulated that the Bank of Japan might signal a further shift away from its ultra-easy policy at a conference next week. After dropping 1.3% last week and momentarily hitting a low of 141.60, the US dollar was last seen at 144.97 yen.
With market pricing for early ECB rate cuts pushing it, the dollar performed better against the euro at $1.0761.
According to analysts of CBA, the expectation is that the ECB post-meeting communication won't significantly alter market pricing for a rate-cutting cycle that starts in April, given how quickly inflation is declining in the Eurozone. June is when they anticipate the first rate reduction to occur.
With the release of the jobs report, gold prices dropped, and it was last trading at $1,006 per ounce in the commodity markets.
Due to uncertainty about whether all OPEC+ members would continue with supply cuts, oil prices fell 3.9% in the past week to five-month lows. Since then, prices have been stagnant. On Friday, there was some support for prices after Washington declared it would replenish its strategic reserves of oil.
The result of the COP28 climate summit, which is attempting to come to a historic agreement to gradually phase out consumption of fossil fuels worldwide, will also be closely watched by the market.
US crude remained unchanged at $71.23, while Brent increased by 5 cents to $75.89 per barrel.