SYDNEY: Asian shares started cautiously on Monday in a week packed with economic data and central bank meetings, along with earnings from the tech giants that have kept the S&P 500 afloat so far this year.
Early action was sluggish in the wake of Friday’s surprisingly strong surveys of business activity which reinforced the case for higher interest rates.
MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1%, while Japan’s Nikkei nudged up 0.2%. S&P 500 futures and Nasdaq futures both eased 0.2% ahead of a busy week of earnings.
Apple Inc and Microsoft Corp alone have accounted for nearly half of the S&P 500’s gains through March, so there is much riding on their outlooks.
“We believe stalwarts Microsoft, Amazon and Google should all deliver cloud results that meet and likely exceed Street 1Q expectations this week despite recent noise in the market,” said analysts at Wedbush Securities.
“We also believe a major narrative of tech earnings season will be the AI arms race and each Big Tech player updating investors on their own AI ambitions/monetization strategy as Redmond battles Google and other tech stalwarts for the AI trophy case.”
The US House of Representatives could this week vote on a Republican plan to raise the debt ceiling in exchange for spending cuts.
Weak tax receipts mean the government could run out of money earlier than expected, and the risk of default has seen a rise in US credit default swaps.
Figures on US wages and economic growth due this week will likely reinforce the case for further tightening.
Asian FX, stocks dip as investor caution prevails
The Atlanta Fed’s influential GDP Now tracker has the U.S economy growing an annualised 2.5% in the first quarter, only a shade slower than the previous quarter.
Markets are pricing in an 89% chance the Federal Reserve will hike rates by a quarter point at its meeting in the first week of May, and fully expects a similar hike from the European Central Bank with some risk of a half-point move.
Central banks in Canada and Sweden meet this week, but most attention will be on the Bank of Japan for the first meeting chaired by its new governor, Kazuo Ueda.
Only three out of 27 economists polled by Reuters expect the BOJ to start to scale-back its yield curve control policy (YCC) this soon, but there are reports the central bank is considering conducting a comprehensive review of the impact of its easing.
“Media background suggests don’t expect tweaks to YCC, but its clear the writing is on the wall and the risk is of more substantive change at the next meeting,” said Tapas Strickland, head of market economics at NAB.
The divergence in policy between Japan and the rest of the developed world has seen the yen weaken steadily in the last few weeks, with the euro in particular hitting a six-month high.
The single currency was firm at 147.33 yen on Monday , while the dollar held at 134.03.
The euro also edged up to $1.0992 and nearer its recent one-year peak of $1.1075. A higher dollar and bond yields have been a burden for gold, which shed 1.2% last week and was last lying at $1,984 an ounce.
Oil prices also lost ground last week, though planned production cuts from OPEC offer some support. Brent eased 9 cents on Monday to $81.57 a barrel, while US crude fell 12 cents to $77.75 per barrel.