Asia Stocks Look Muted Ahead of Central Bank Week: Markets Wrap

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(Bloomberg) — Asian stocks are poised for a mixed start into a week that includes policy decisions from the Bank of Japan and Federal Reserve that will likely set the near-term direction for global markets. 

Australian equity futures point to a slight loss early Monday while Japanese and Hong Kong contracts showed small gains. The S&P 500 Index fell 0.7% on Friday, a move exacerbated by the expiry of derivative contracts tied to stocks, index options and futures.

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Japanese shares will be in early focus following reports that the BOJ may lift its key interest rate to 0%-0.1% on Tuesday, its first hike in 17 years. Speculation on the central bank exiting its negative rate policy intensified on Friday after Japan’s largest union group announced the strongest wage deals in more than three decades. 

While swaps traders have priced about 28 basis points worth of rate hikes this year, they see the chance of a March hike at about 54%, according to data compiled by Bloomberg. The yen was little changed against the dollar in early Asian trading. 

“We expect the BOJ to point out that although there is still a high degree of uncertainty about the future, it is now in a situation where it can see the achievement of the price target and it could likely abolish negative rates and yield-curve-control policies,” Societe Generale economists including Jin Kenzaki wrote in a note to clients. “However, at the same meeting, we also expect the bank to pledge to maintain interest rates at zero and 6 trillion yen per month in Japanese government bond purchases.”

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Read More: Japan’s $4 Trillion to Stay Offshore After BOJ Hike: MLIV Pulse 

Elsewhere in Asia, China’s economic activity due Monday was likely mixed at the start of the year with property remaining a major drag, raising doubts about the nation’s ability to gain momentum and hit an ambitious growth target of around 5%. The data, however, is unlikely to push the yuan out of its recent tight range, torn between China’s central bank and the upcoming Fed policy meeting, according to Commonwealth Bank of Australia.  

“A potentially hawkish FOMC meeting can place upward pressure on dollar-offshore yuan” this week, CBA strategists led by Joseph Capurso wrote in a note to clients. But that “will likely be capped by the People’s Bank of China’s continued onshore yuan support at the daily fix.” 

The Fed’s policy meeting Wednesday may dictate the direction of global stocks for the next quarter. Prior to the blackout period, Chairman Jerome Powell indicated the central bank was close to having the confidence to cut, while others debated how deep, or shallow, those declines will be.  

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Bond traders, meanwhile, appear to have painfully surrendered to a higher-for-longer reality. Yields on policy sensitive two-year Treasuries have climbed 11 basis points this month to 4.73%, extending last month’s gain. Swaps traders are pricing about 71 basis points of rate cuts by year-end, down from 134 basis points at the start of the year, according to data compiled by Bloomberg. 

“The Fed may have less confidence on inflation than before, but it still has confidence in the disinflation trend,” and may keep its median forecast of three cuts this year, Bank of America economists including Michael Gapen wrote in a note to clients. “This may be fanciful thinking on our part, but there are several inflation reports and plenty of time between now and June to change course if needed.” 

Read More: Traders Look to Consumer Stocks for Clues on Where Fed Is Headed

Elsewhere this week, the Reserve Bank of Australia is set to extend its rate pause while Bank Indonesia and the Bank of England also deliver policy decisions. Eurozone inflation data is due as well as Reddit Inc.’s initial public offering. 

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Key events this week: 

• China industrial production, retail sales, fixed assets, Monday
• Eurozone CPI, Monday
• Australia rate decision, Tuesday
• Japan rate decision, Tuesday
• Canada inflation, Tuesday
• China loan prime rates, Wednesday
• Indonesia rate decision, Wednesday
• UK CPI, Wednesday
• US rate decision, Wednesday
• Brazil rate decision, Wednesday
• ECB President Christine Lagarde speaks, Wednesday
• New Zealand GDP, Thursday
• Taiwan rate decision, Thursday
• Switzerland rate decision, Thursday
• Norway rate decision, Thursday
• UK rate decision, Thursday
• Mexico rate decision, Thursday
• European Union summit in Brussels, Thursday
• Japan CPI, Friday

Some of the main moves in markets:

Stocks

• Hang Seng futures rose 0.2% as of 7:09 a.m. Tokyo time
• S&P/ASX 200 futures fell 0.2%
• Nikkei 225 futures rose 0.2%

Currencies

• The euro was little changed at $1.0891
• The Japanese yen was little changed at 149.10 per dollar
• The offshore yuan was little changed at 7.2040 per dollar
• The Australian dollar was little changed at $0.6559

Bonds

• Australia’s 10-year yield advanced 4 basis points to 4.17%

Cryptocurrencies

• Bitcoin was little changed at $68,228.6
• Ether was little changed at $3,633.29

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Michael G. Wilson.

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