By Richard Henderson
Asian equities traded within narrow ranges early Monday as investors looked ahead to a busy week of economic data including the Federal Reserve’s preferred inflation gauge. China’s currency pared some of Friday’s losses following support by authorities.
Shares in Australia and Hong Kong edged higher, while those in Japan and mainland China slipped. US equity futures were little changed after a muted end to the week on Wall Street with the S&P 500 declining 0.1% and the Nasdaq index rising by the same margin on Friday.
Treasuries were mostly steady following a rally on Friday that wiped seven basis points from the 10-year yield. Australian and New Zealand bond yields ticked lower Monday.
The offshore yuan strengthened on signs of official support after China’s central bank set a stronger-than-expected daily reference rate. The gap between the yuan’s daily fixing versus estimates was the widest since November, while Bloomberg calculations indicated the People’s Bank of China injected a net 40 billion yuan ($5.56 billion) in open market operations.
Chinese Premier Li Qiang had downplayed investor concerns of challenges facing the economy, saying Beijing was stepping up policy support to spur growth and systemic risks are being addressed.
“Just saying the risks are not as much as people think is not going to draw investors back,” says Vey-Sern Ling, managing director at Union Bancaire Privee. “China is not just a ‘show me’ story for investors, it’s a ‘show me a lot more than I expect’ story.”
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Elsewhere, the yen strengthened Monday after Japan’s top currency official warned about excessive currency speculation and said authorities were prepared to take action if needed.
The dollar edged lower following a recent run of gains, with all major currencies strengthening against the greenback. A gauge of the dollar ended last week at the highest level in more than a month — and close to its 2024 high.
The recent advances for the dollar reflect a shift in investor thinking about the world’s reserve currency. At the start of the year, many expected the dollar to weaken against its peers as the Fed edged closer to rate cuts. Now, the prospect that other developed market central banks will also cut has rekindled the currency’s appeal.
“Tightening usually causes recessions when it triggers financial crises that turn into credit crunches,” said Ed Yardeni, president of his eponymous research firm, said in a Monday note. “That sequence of events is unlikely now,” he said, citing the Fed’s use of emergency liquidity measures to address crises, such as the stress in the US banking system in March last year.
Investors will be monitoring a slew of inflation data around the world this week. That includes the Fed’s preferred measure of underlying inflation, due Friday, that’s expected to show price increases remained uncomfortably high in February. The core personal consumption expenditures index, which excludes food and energy costs, is seen rising 0.3% on the heels of its biggest monthly increase in a year.
Inflation readings are also due in Australia, France, Italy and Spain later this week, offering clarity on rising prices as investors begin to position for rate cuts.
Forecasts for Fed cuts have spurred renewed interest in the so-called bond steepener trade, where investors load up on short-dated US bonds that offer attractive short-term price appreciation as rates fall.
In other moves, West Texas Intermediate rose to trade above $81 a barrel and gold edged higher to around $2,176 per ounce.
First Published: Mar 25 2024 | 5:23 PM IST