SYDNEY: Asian equities opened quietly on Monday as investors braced for a decisive week of global central bank meetings, with the U.S. Federal Reserve set to resume its easing cycle and potentially lay the groundwork for further cuts.
Fed Expected to Cut, Markets Eye Powell
Markets are fully pricing in a 25 basis point reduction, which would bring the Fed funds rate to between 4.00 and 4.25 percent. Futures show only a four percent chance of a deeper half-point move. Investors will scrutinize the Fed’s “dot plot” forecasts and the guidance of Chair Jerome Powell for clarity on how far and fast easing might go.
“After cutting policy rates 25bp, Chair Powell is likely to guide toward a series of further rate cuts, noting that downside risk to employment has increased further following recently softer jobs data,” said Andrew Hollenhorst, chief U.S. economist at Citi. He expects reductions at each of the next five meetings and forecasts the Fed’s median projections will show 75 basis points of cuts this year. Markets have already priced in 125 basis points, which raises the risk of disappointment if Powell is less dovish.
Former U.S. President Donald Trump renewed his attacks on the central bank, calling Powell “incompetent” and blaming him for damaging the housing market.
Global Central Banks in Focus
The Bank of Canada is also expected to cut rates by a quarter point this week, while China’s central bank may trim one of its market rates to support a slowing economy. The Bank of Japan and the Bank of England are both seen holding steady.
In Europe, the euro was little changed at $1.1727, close to last week’s peak of $1.1780, as investors looked past Fitch’s downgrade of France. Support has come from expectations that the European Central Bank is in a “good place” on policy, with President Christine Lagarde and other officials due to speak this week.
Market Moves Across Asia
Trading was subdued by a holiday in Japan, with Nikkei futures at 44,570 compared with Friday’s close of 44,768. The index climbed more than four percent last week.
South Korea’s Kospi added 0.4 percent, extending a six percent surge from the previous week on optimism over artificial intelligence and domestic reforms. The MSCI index of Asia-Pacific shares outside Japan slipped 0.1 percent.
Currency trading was calm, with the dollar at 147.77 yen within its recent 146.22 to 149.13 range.
Bonds and Commodities Hold Steady
U.S. 10-year Treasury yields were steady at 4.07 percent after touching a five-month low of 3.994 percent last week. Softer labour market data has bolstered expectations for aggressive easing. The three-month average of nonfarm payrolls has slowed to 29,000, far below the 10-year trend of 145,000, making it insufficient to keep unemployment from rising.
Oil markets reflected mixed drivers, with Brent crude trading at $67.01 a barrel and U.S. crude at $62.77. Gold eased 0.1 percent to $3,639 an ounce, near last week’s record high of $3,673.95.
Data and Geopolitics Ahead
Investors are watching for U.S. retail sales, industrial output, housing starts and jobless claims this week, while China will release retail sales and industrial production figures later on Monday. Forecasts suggest little improvement.
U.S. and Chinese officials concluded the first day of trade talks in Madrid on Sunday, with discussions set to continue. Trump said he is still negotiating over the divestiture deadline for Chinese app TikTok and pressed Washington’s allies to impose tariffs on Chinese imports linked to purchases of Russian oil.
