- MSCI Asia ex-Japan hit the highest since April 21
- The central bank is expected to avoid a rate hike this week
- Oil fell 1% on China worries
SINGAPORE, June 12 (Reuters) – Asian shares closed in cautious trade on Monday as investors braced for central bank decisions in Europe, Japan and the United States this week. US inflation data will also influence the Federal Reserve’s monetary policy.
MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) rose 0.07% to 521.24, having touched a one-month high of 521.94 in the previous session. The index rose 4% for the month. Japan’s Nikkei (.N225) rose 0.41%, Australia was closed.
Futures pointed to a higher open for European shares, with Eurostoxx 50 futures up 0.35%, German DAX futures up 0.34% and FTSE futures up 0.40%. E-mini futures for the S&P 500 rose 0.13%.
Last week, the Reserve Bank of Australia and the Bank of Canada stunned markets by raising interest rates to control stubborn and sticky inflation, fueling concerns that the central bank could follow suit and take a dovish stance at its June meeting.
City strategists said the central bank may face a lesson learned by other central banks, such as the Bank of Canada — that more tightening is needed to bring inflation down to 2%.
According to the CME FedWatch tool, markets are pricing in a 71% probability when the US Federal Reserve meets on June 13-14.
“It’s a close call between a 25 basis point hike or a ‘skip’ … come CPI on Tuesday,” Citi said in a note.
Citi expects a 25 basis point hike from the central bank. “The most straightforward action to take when rates are high is to raise rates.”
While doubts remain among investors about which path the central bank will take this week, they are confident that the European Central Bank, which meets on Thursday, will raise rates and be in a worse position.
“We expect (ECB chief) Lagarde to keep a dovish stance on inflation, arguing for more to be done on the inflation front,” said Mohit Kumar, economist for Europe at Jefferies.
“Lagarde is unlikely to give any indication that they are ready to pause after July, which is what the market is currently pricing in,” said Kumar, who expects the ECB to raise interest rates by 25 basis points.
In China, the Shanghai Composite Index (.SSEC) lost 0.3%, while Hong Kong’s Hang Seng Index (.HSI) fell 0.45%. China’s post-Covid-19 economic recovery has weighed on stocks, with investors hoping for more policy stimulus as weaker manufacturing and exports hurt the broader outlook this year.
Credit credit, retail sales and industrial production data to be released in China this week could dampen forecasts, following weaker-than-expected inflation in May.
The People’s Bank of China (PBOC) is set to mature 200 billion yuan ($28.00 billion) worth of medium-term policy loans on Thursday, and will focus on the rate at which they are repaid.
A cut due to China’s post-pandemic recovery could widen the gap between US and Chinese prices and weigh on the yuan.
In currency markets, the dollar index, which measures the U.S. currency against six major rivals, rose 0.087%, while the euro fell 0.07% to $1.074.
The yen fell 0.06% to 139.44 per dollar ahead of the Bank of Japan’s (BOJ) policy meeting on Friday.
The BOJ is expected to maintain very loose monetary policy this week and its forecast for a modest economic recovery.
Elsewhere, the Turkish lira fell to a record low of 23.77 per dollar as investors awaited signs of policy moves after the appointment of a new central bank governor.
U.S. crude fell 1.33% to $69.24 a barrel, while Brent was down 1.3% to $73.82. Both benchmarks saw their second weekly declines last week as disappointing Chinese economic data raised concerns about rising demand in the world’s biggest crude importer.
Spot gold was down 0.1% at $1,959.29 an ounce. US gold futures were down 0.15% at $1,959.30 an ounce.
Editing by Jacqueline Wong; Editing by Simon Cameron-Moore
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