Stocks Rise, Dollar Slips Ahead of Inflation Data: Markets Wrap

(Bloomberg) — Asian stocks rose, heading for their second day of gains on Tuesday, as the dollar slipped before a swath of inflation prints that’s expected to influence the direction of global monetary policy.

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The MSCI AC Asia Pacific index rose, with stocks in Hong Kong leading gains. US and European equity futures remained firm. The Bloomberg dollar index was down for a third day, falling against all of its Group-of-10 peers as investors mull prospects for US interest-rate cuts. Australia’s currency outperformed. The 10-year Treasury yield remained steady.

“Upbeat risk tone weighed on the US dollar and supported the Australian dollar,” Peter Dragicevich, APAC currency strategist at Corpay, wrote in a note. “If we are right in our assessment that the US core PCE deflator moderates, the China PMIs improve, and/or statistical quirks see euro-zone inflation re-accelerate, we believe the USD could lose ground later in the week.”

Chinese property shares advanced after Shanghai lowered down-payment ratios and the minimum mortgage threshold, as bigger Chinese cities follow through on the central government’s aid for the property sector. Tech stocks in China gained as major Chinese state banks said they will put a combined 114 billion yuan ($15.7 billion) into a semiconductor investment fund.

Traders will this week be studying fresh inflation data from Australia to Japan, the euro region and the US. Bank of Japan Governor Kazuo Ueda and his deputy indicated there is scope for gradually raising interest rates now that the nation has shifted away from an inflation norm of 0%. Japan’s April producer prices beat estimates, jumping 2.8% from a year earlier.

“Things will pick up tonight when the US opens, and then I suspect the next few days, all else being equal, will be driven by end-of-month flows and then that crucial PCE Index release,” said Kyle Rodda, a senior market analyst at Capital.Com Inc. “All we are seeing is the usual tidal currents in the market when there’s nothing much going on and no one is really around.”

The Federal Reserve’s favorite measure of underlying inflation is expected to show modest relief when it lands on Friday. Chair Jerome Powell has stressed the need for more evidence that inflation is on a path to the 2% goal before easing policy. John Williams, Lisa Cook, Neel Kashkari and Lorie Logan are among US central bankers due to speak this week.

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In commodities, gold steadied. Oil advanced as focus shifted to an OPEC+ supply meeting on Sunday and US demand at the start of the summer driving season. Copper resumed its rally as China steps up efforts to rescue its property market and as the dollar weakened. Wheat briefly touched the highest level in more than nine months on concerns over shrinking stockpiles. Palm oil headed for its highest close since late April on expectations that shipments from top growers in Southeast Asia will rise to fulfill renewed demand from major buyers.

The ECB shouldn’t rule out lowering borrowing costs at both its June and July meetings, Governing Council member Francois Villeroy de Galhau said, pushing back against fellow monetary officials uncomfortable with the idea of consecutive cuts. Chief Economist Philip Lane told the Financial Times the central bank will have to keep policy restrictive through 2024, even with the prospect of an interest-rate cut next month.

While an ECB rate cut in June has been widely telegraphed, subsequent steps are less clear given uncertainty over wage growth and factors like the fighting in the Middle East. Data this week may show headline inflation in the euro region ticked up in May.

Read More: About the ‘T+1’ Rule Making US Stocks Settle in a Day: QuickTake

The “T+1” rule that has the potential to cause trouble for overseas investors comes into effect when traders return from the long weekend — making US equities settle in one day rather than two.

Some key events this week:

• IMF holds discussions with Ukrainian authorities to review economic policies as the country seeks to unlock next tranche of $2.2 billion in aid, Monday

• Cleveland Fed President Loretta Mester speaks at BOJ event in Tokyo; Minneapolis Fed President Neel Kashkari and ECB Governing Council member Klaas Knot address Barclays-CEPR International Monetary Policy forum, Tuesday

• South African election, the most significant since the end of apartheid, Wednesday

• Fed releases Beige Book economic survey, Wednesday

• South Africa rate decision, US initial jobless claims, GDP, wholesale inventories, Thursday

• New York Fed President John Williams speaks at the Economic Club of New York, Thursday

• GDP data published for Canada, euro zone, Turkey, Friday

• Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 1:40 p.m. Tokyo time

• Nasdaq 100 futures rose 0.3%

• Japan’s Topix was little changed

• Australia’s S&P/ASX 200 fell 0.2%

• Hong Kong’s Hang Seng rose 0.6%

• The Shanghai Composite was little changed

• Euro Stoxx 50 futures rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.2% to $1.0880

• The Japanese yen rose 0.1% to 156.69 per dollar

• The offshore yuan was little changed at 7.2577 per dollar

Cryptocurrencies

• Bitcoin fell 2.7% to $67,726.88

• Ether fell 1.3% to $3,837.44

Bonds

• The yield on 10-year Treasuries was little changed at 4.46%

• Japan’s 10-year yield advanced one basis point to 1.035%

• Australia’s 10-year yield was little changed at 4.27%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Hooyeon Kim and Ruth Carson.

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