© Reuters. FILE PHOTO: The Japanese national flag is raised at the headquarters of the Bank of Japan in Tokyo, Japan on September 20, 2023. REUTERS/Issei Kato/File Photo
By Wayne Cole
SYDNEY (Reuters) – Asian shares fell on Monday as Japan’s central bank could move further away from its uber-easy policies for the week, while a key reading on U.S. inflation is expected to support market pricing of interest rate cuts there. .
The Bank of Japan (BOJ) meets on Tuesday to consider how and when to move away from negative interest rates. None of the analysts polled by Reuters expected a concrete move at the meeting, but policymakers could eventually lay the groundwork for change.
In April, 17 out of 28 economists agreed with the push to eliminate negative rates, making the BOJ one of the world’s few central banks.
“Since the last meeting in October, the 10-year JGB yield has fallen and the yen has weakened, giving the BOJ little incentive to revise policy at this point,” said Barclays economist Christian Keller.
“We think the BOJ will wait to confirm the outcome of the ‘Shundo’ wage negotiations next spring before moving in April.”
0.7% lost. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3%.
South Korea’s main index added 0.3%, in no apparent reaction to reports that North Korea had fired a ballistic missile off its east coast.
Chinese blue chips fell 0.3%, following five straight weeks of declines.
Up 0.3%, while Nasdaq futures added 0.2%. EUROSTOXX 50 futures fell between 0.3% and 0.1%.
In the United States, analysts forecast the core personal consumption expenditure (PCE) index to rise 0.2% in November, with the annual inflation rate slowing to 3.4% from mid-2021.
Analysts suspect the balance of risk is to the downside and a 0.1% month-on-month increase would leave the six-month annualized inflation pace at just 2.1%, well below the Federal Reserve’s target of 2%.
Markets are counting on a slowdown in inflation, which means the central bank will need to ease policy to prevent real rates from rising, and engage in early and aggressive action.
New York Fed President John Williams tried to rain on the parade on Friday, saying there was no talk of easing by policymakers, but markets didn’t want to listen.
Two-year Treasury yields rose slightly in response, ending the week 28 basis points lower at their lowest close since mid-May.
The yield on the 10-year note was at 3.91%, down 33 basis points last week in its biggest weekly drop since the start of 2020.
Fed funds futures indicate a 74% chance of a rate cut in early March, while easing rates by 39 basis points (bp) in May. The market is pointing to cuts of at least 140 basis points by 2024.
“We now forecast three consecutive 25bp cuts in March, May and June, followed by one cut per quarter until we reach a terminal rate of 3.25-3.5%, 25bp lower than we previously expected,” analysts at Goldman Sachs wrote. In customer reference.
“This means five cuts in 2024 and three more in 2025.”
If correct, such easing would allow some Asian central banks to ease earlier, with Goldman bringing forward cuts in India, Taiwan, Indonesia and the Philippines.
The investment bank now sees its forecast at 5,100 in 2024, while slowing inflation and Fed easing will keep real yields low and support gains higher than 19.
The market’s gloomy outlook for US rates saw the dollar fall 1.3% against a basket of currencies last week, although the central bank was not alone in rate-cutting stocks.
Markets are pointing to 150 basis points of easing by the European Central Bank next year and 113 basis points of cuts from the Bank of England.
That outlook capped the euro at $1.0909, retreating from above $1.1004 on Friday. The dollar was the most vulnerable at 142.23 against the yen, having fallen 1.9% last week.
The fall in the dollar and yields for gold should be at $2,021 an ounce, although that was below its recent all-time high of $2,135.40. [GOL/]
Oil prices attempted to hold steady at a five-month low last week amid doubts that all OPEC+ producers will stick with output caps. [O/R]
Fewer exports from Russia and Houthi attacks on shipping in the Red Sea provided some support. U.S. crude rose 47 cents to $77.02 a barrel and rose 47 cents to $71.90 a barrel.
“Friend of animals everywhere. Devoted analyst. Total alcohol scholar. Infuriatingly humble food trailblazer.”