Feb 26 2024: Asian shares experienced fluctuations on Tuesday, with slightly higher-than-anticipated Japanese inflation causing cautiousness among investors ahead of upcoming price data releases in Europe and the U.S. this week. However, Bitcoin continued its upward trajectory, indicating growing interest from institutional investors.
The yen stabilized against the dollar at 150.50 and edged up from a three-month low against the euro as Japanese inflation remained at the central bank’s targeted 2% year-on-year rate. This sustains expectations of an exit from negative interest rates by the Bank of Japan by April.
Although Tokyo’s Nikkei eked out a marginal record high, closing just 0.01% higher, MSCI’s broadest index of Asia-Pacific shares outside Japan dipped by 0.2%, remaining below last week’s seven-month peak.
Brent crude futures hovered around $82.63 a barrel following reports of a proposed Gaza truce, including a 40-day cessation of hostilities, offered to Hamas.
Meanwhile, S&P 500 slipped by 0.1%, while Nasdaq futures, FTSE futures, and European futures each recorded declines of about 0.2%.
The Federal Reserve’s closely watched core Personal Consumption Expenditures (PCE) price index is scheduled for release on Thursday, with forecasts predicting a 0.4% increase.
Analysts at ANZ Bank commented, “If, as expected, the core month-on-month reading reaches its highest level since last February, it would align with the Fed’s patient approach.”
Market sentiment was influenced by rate concerns and substantial auctions totaling $127 billion on Tuesday and an additional $42 billion on Wednesday, which kept Treasuries under pressure. However, yields stabilized during the Asian session.
Ten-year U.S. Treasury yields were 1.4 basis points lower at 4.29%, while two-year yields fell by 3 bps to 4.71%.
Market expectations for the first Federal Reserve easing have shifted from May to June, currently priced at around a 70% probability. Futures indicate slightly over three quarter-point cuts this year, compared to five at the beginning of the month.
Currency trading remained relatively subdued in Asia, with the Australian and New Zealand dollars facing continued pressure. The Aussie briefly touched a one-week low of $0.6525 due to a decline in iron ore prices before rebounding slightly to $0.6547. Similarly, the kiwi hit a one-week low as traders scaled back expectations of a rate hike by the Reserve Bank of New Zealand.
The euro remained steady at $1.0850, while sterling dipped slightly to $1.2676 as speculators reduced bullish bets. Bitcoin surged by over 3% to surpass $57,000.
European Union inflation figures are also anticipated later this week, with the core gauge expected to slow to its lowest level since early 2022 at 2.9%. This brings the prospect of the European Central Bank (ECB) easing its policy closer.
Markets are pricing in nearly certain odds of a first cut by June, with April seen as a 36% chance. In recent speeches, ECB President Christine Lagarde and Bank of Greece Governor Yannis Stournaras reiterated caution regarding immediate rate cuts.
Later on Tuesday, Bank of England deputy Dave Ramsden and Riksbank Governor Erik Thedeen are scheduled to speak. Additionally, a mix of mostly secondary U.S. and European data, including consumer confidence figures for Germany, France, and the U.S., is expected.
