Asian shares up on hopes for Fed rate cut

Asian stocks kicked off the week on a positive note, buoyed by expectations of potential interest rate cuts from the Federal Reserve and Bank of England.

This optimism comes ahead of a busy week filled with key central bank meetings, corporate earnings reports, and economic data releases.

The rally followed a benign June inflation report in the US, prompting markets to believe the Fed may signal a rate cut at its policy meeting on Wednesday.

Futures markets are currently pricing in a full quarter-point cut, with an even slim chance of a 50-basis point reduction. Analysts at Goldman Sachs expect the Fed to maintain rates but revise its statement to hint at a possible cut in September.

Meanwhile, the Bank of Japan (BOJ) is also set to meet on Wednesday. Markets anticipate a 70 per cent chance of a 10-basis point hike to 0.2 per cent, with a slight possibility of a 15-basis point increase.

The Bank of England meeting on Thursday remains less certain, with futures indicating a 51 per cent probability of a five per cent rate cut.

The prospect of higher borrowing costs in Japan weighed on the Nikkei last week, which shed six per cent amid a strengthening yen. However, the index managed to rally by 2.2 per cent on Monday, mirroring the positive sentiment on Wall Street.

Broader Asian markets outside Japan also saw modest gains, with the MSCI Asia Pacific Index excluding Japan rising 0.4 per cent after losing two per cent last week.

Chinese blue chips, however, bucked the trend and slipped 0.9 per cent, seemingly unimpacted by recent rate cuts in the country.

Looking ahead, the focus shifts to the upcoming earnings season. Around 40 per cent of the S&P 500, including tech giants Microsoft, Apple, Amazon, and Meta Platforms, are scheduled to report this week.

High expectations surround these reports, and any disappointments could trigger volatility across the broader market.

In currency markets, the Japanese yen slightly retreated from its recent gains, with the dollar inching up to 154.15 yen. The euro remained flat around $1.0855.

Gold prices firmed 0.5 per cent to $2,398 an ounce, supported by the prospect of a dovish Fed.

Oil prices initially edged up on Middle East tensions but quickly turned volatile amidst concerns about Chinese demand. Brent crude gained a mere four cents to $81.17 a barrel, while US crude dipped seven cents to $77.09 per barrel.

Attribution: Reuters