©Reuters. A cashier sorts US dollar banknotes inside the cashier’s stand at a forex exchange office in central Nairobi, Kenya, February 16, 2024. REUTERS/Thomas Mukoya
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By Wayne Cole
SYDNEY (Reuters) – Asian shares remained firm and the dollar held steady on Monday as investors tried to navigate a minefield of central bank meetings this week that could see an end to free money in Japan and perhaps a Slower glide path for US rate cuts.
The central banks of the United States, Japan, the United Kingdom, Sweden, Switzerland, Australia, Brazil and Mexico meet, and while most are expected to remain stable, there is plenty of room for surprises.
Tuesday could mark the end of an era as the Bank of Japan is now widely tipped to end eight years of negative interest rates and end or change its yield curve control policy.
The Nikkei newspaper on Saturday became just the latest news outlet to report the move, after major companies handed out their biggest pay rises in 33 years.
There is a possibility that the BOJ will wait for the April meeting, as it will release updated economic forecasts at that time.
“Whether or not it is March or April, we suspect that the language accompanying any such move will have a cautious tone, emphasizing it more as a monetary policy adjustment rather than a tightening at this stage,” said Carl Ang, an income analyst permanent at MFS Investment Management.
“For Japan, a measured and gradual path of policy normalization appears appropriate for an economy unaccustomed to higher rates and therefore the political message will be key.”
Markets also assume the BOJ will hike at a snail’s pace and have priced in a rate of 0.27% by December, compared to the current -0.1%.
This may be one reason why the yen actually lost ground last week, with the dollar gaining 1.4% to trade at 149.00 yen. The euro settled at $1.0883, having lost 0.5% last week and away from the high of $1.0963.
rebounded 0.8%, having lost 2.4% last week, after the run to record highs attracted some profit-taking.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.1%, after falling 0.7% last week. Chinese retail sales and industrial production data for February, due on Monday, pose potential headwinds for the market.
and Nasdaq futures both rose 0.1%, with tension rising ahead of the Federal Reserve’s policy meeting on Tuesday and Wednesday.
COUNT THE POINTS
It is considered certain that the Fed will keep rates at 5.25-5.5%, but there is the possibility that it could signal an increase in the longer-term outlook for policy, given the stickiness of inflation both at the consumption and of production.
“We now expect 3 cuts in 2024, versus 4 previously, mainly due to the slightly higher inflation path,” Goldman Sachs economist Jan Hatzius said in a note.
He still expects the Fed to begin in June, assuming inflation falls again as expected, and that officials maintain their forecast of three cuts this year.
“The main risk is that FOMC participants may instead be more concerned about recent inflation data and less convinced that inflation will resume its previous weak trend,” Hatzius warned. “If that happens, they could raise their 2024 core PCE inflation forecast to 2.5% and show a median of 2 cuts.”
The Fed is also expected to begin formal discussions on slowing the pace of bond sales this week, perhaps halving it to $30 billion a month.
Bonds could benefit from support given the damage caused by a series of uncomfortably high inflation levels. Two-year Treasury yields rose to 4.723%, after rising 24 basis points last week, while 10-year yields stood at 4.315%. [US/]
The probability of a rate cut as early as June fell to 55%, from 75% a week earlier, and the market priced in just 72 basis points of easing for 2024 compared to more than 140 basis points a month ago.
The Bank of England meets on Thursday and is expected to hold at 5.25%, while markets see some possibility that the Swiss National Bank may ease this week.
The rise in the dollar and yields took some of the shine off gold, which was stuck at $2,155 an ounce after falling 1% last week and off record highs. [GOL/]
Oil prices fared better after the International Energy Agency raised its outlook on oil demand for 2024, while the supply outlook was clouded by Ukrainian attacks on Russian oil refineries. [O/R]
it had fallen 3 cents to 85.31 dollars a barrel, while it was stable at 81.04 dollars a barrel. [O/R]