Asian stocks declined on Monday, holding gains after their strongest week in five months, as investors awaited China's rate announcement and the testimony of Jerome Powell, the US Federal Reserve Chair for guidance on the way forward.
When markets in Europe open, the loss is expected to continue as pan-regional Euro Stoxx 50 futures are down 0.7%. Due to the Juneteenth holiday, US markets are closed, and Wall Street futures are basically flat in Asia.
After reaching a four-month peak the previous day and ending the week up 3%, the greatest weekly performance since January, MSCI's broadest index of shares in the Asia-Pacific region outside of Japan fell 0.8% on Monday.
As a result of the Bank of Japan maintaining its ultra-easy policy stance and sending the yen down to a 7-month low versus the dollar, Japan's Nikkei, which had reached a three-decade high on Friday, fell 1.3%.
Cash Treasuries were not traded, although futures rose somewhat in the absence of much liquidity.
Investors in China had high hopes for a stronger stimulus program, but they were disappointed by the lack of specifics from the government's meeting on Friday. The Hang Seng index in Hong Kong fell 1.6%, while China's blue chips fell 0.8%.
In a move that was made in concert with other major banks on Sunday, Goldman Sachs lowered its prediction for the growth of China's GDP this year from 6.0% to 5.4%.
A tug-of-war between diminishing growth momentum and rising policy support is currently affecting the economy, according to Goldman analysts.
They said that they believe that growth obstacles are likely to persist while authorities face constraints in providing meaningful stimulus by political as well as economic considerations.
Following a similar decrease in medium-term policy borrowings last week, the People's Bank of China is generally anticipated to reduce the prime rate of interest on its benchmark loans on Tuesday.
On Monday, top Chinese diplomat Wang Yi and US Secretary of State Antony Blinken had a meeting. All eyes focus on Blinken as he concludes his unusual trip to Beijing, and if he will be meeting with Chinese President Xi Jinping afterwards on the day.
Powell goes on stage
Investors are keeping an eye on a couple of Fed speakers during the week, with Powell scheduled to testify before Congress on Wednesday and Thursday. This comes after a week when the stock market applauded the Fed's decision to forgo raising interest rates in June.
Markets are putting in a 70% likelihood that the Fed will raise rates by one-quarter point in July before keeping them stable for the rest of the year, despite some members already sounding hawkish and the dot plot predicting two more hikes. Powell goes on stage.
Fed Chair Jerome Powell testifies before both the Senate and House with a focus on if the upcoming July Federal Open Market Committee meeting is actually "live" and whether the Fed dot plot of two additional hikes is an actual base case relying on the information.
On Thursday, the Bank of England will also have a meeting and is expected to increase the rate of interest by a quarter point, reaching a 15-year high at 4.75%. The British central bank's interest rates are expected to increase to about 6% this year, according to the markets.
On Monday, the US dollar index, which measures the greenback's performance versus other major currencies, was little changed at 102.33, down from the previous week's 1.2% decline, which was a five-month high.
A dovish BOJ caused the yen to fall to a seven-month bottom of 141.97 per dollar, while a hawkish ECB helped the euro maintain its position close to a five-week high at $1.093 by raising rates by one-quarter point last week.
Over 1% was lost in the Monday drop in oil prices. In comparison to Brent crude, which dropped 1.4% to $75.52 a barrel, US crude futures slid 1.5% to $70.74 a barrel.