Asian Shares on Guard for Inflation, Earnings Tests
Asian shares began the week on a cautious note following the end of Wall Street’s winning streak. Investors are now awaiting U.S. inflation data and a corporate reporting season, where positive results are needed to justify high stock valuations. Geopolitical tensions, including the Israeli conflict with Hamas and disruptions in the Red Sea, also weighed on investors’ minds.
MSCI’s broadest index of Asia-Pacific shares outside Japan remained mostly unchanged, after a 2.5% decline last week. Meanwhile, Japan’s Nikkei was closed for a holiday, but futures were up compared to Friday’s cash close.
The S&P 500 futures and Nasdaq futures were both up 0.1% in early trade. The S&P 500 index experienced a 1.5% loss last week, breaking a nine-week winning streak. With valuations appearing stretched after a 24% rally last year, the corporate reporting season is crucial to maintain positive momentum.
Major banks, such as JPMorgan Chase and Citigroup, will kick off the reporting rush on Friday with hopes for positive profits. It is forecasted that S&P 500 profits increased by 3% year-on-year, with Goldman Sachs even foreseeing potential upside risks.
Investors are closely watching U.S. inflation data, with futures pricing in around 134 basis points of rate cuts for next year. The U.S. consumer price report on Thursday is expected to have a significant impact on the markets.
Furthermore, several Federal Reserve speakers are scheduled this week to offer their economic outlooks, with New York Fed President John Williams likely to be highly influential.
There are also expectations for inflation data from China and Tokyo, where analysts anticipate deflation to ease slightly in China.
In currency markets, the U.S. dollar continued to strengthen and reached 144.77 yen, showing a 2.5% increase from last week. The euro, on the other hand, was marginally lower at $1.0934.
The dollar’s rally proved to be a headwind for gold, which remained flat at $2,043 an ounce.
Oil prices saw a slight uptick due to concerns about disruptions in the Red Sea and potential increases in shipping costs. Brent crude added 19 cents to reach $78.95 a barrel, while U.S. crude rose 12 cents to $73.93 per barrel.
In summary, Asian shares started the week cautiously as investors awaited U.S. inflation data and the upcoming corporate reporting season. Geopolitical tensions and disruptions in the Red Sea added to market uncertainties. The S&P 500’s nine-week winning streak came to an end last week, further highlighting the importance of positive results this reporting season. Inflation data from the U.S., China, and Tokyo will be closely monitored, as well as the insights shared by Federal Reserve speakers. The U.S. dollar’s recent rally had an impact on gold prices, while oil prices saw a slight increase due to concerns of supply disruption.
