By Stella Qiu
SYDNEY (Reuters) – Asian shares fell on Monday, consolidating gains after their best weekly run in five months, while investors looked ahead to China’s rate decision and U.S. Federal Reserve Chair Jerome Powell’s testimonies for clues on the path ahead.
Europe is set to extend the decline when markets there open, with pan-regional Euro Stoxx 50 futures down 0.7%. U.S. markets are closed for the Juneteenth holiday, with Wall Street futures mostly flat in Asia.
MSCI’s broadest index of Asia-Pacific shares outside Japan slumped 0.8% on Monday, after hitting a four-month high the previous session and finishing up 3% for the week, the best since January.
Japan’s Nikkei tumbled 1.3%, having clinched a three-decade top on Friday, buoyed by the Bank of Japan (BOJ) leaving its ultra-easy policy setting unchanged, which sent the yen to a 7-month low against the U.S. dollar.
Cash Treasuries were untraded, while futures were up a fraction amid little liquidity.
In China, hopes for more forceful stimulus were growing but the lack of concrete details from a cabinet meeting on Friday disappointed investors. China blue chips slipped 0.8%, while Hong Kong’s Hang Seng index slumped 1.6%.
Goldman Sachs (NYSE:GS) on Sunday cut its forecast for China’s GDP growth this year to 5.4% from 6.0%, joining other major banks to slash growth expectations for the world’s second largest economy.
“At this juncture, the economy is under a tug of war between waning growth momentum and increasing policy support,” said Goldman analysts.
“We judge that growth headwinds are likely persistent while policymakers are constrained by economic and political considerations in delivering meaningful stimulus.”
The People’s Bank of China is widely expected to cut its benchmark loan prime interest rates on Tuesday, following a similar reduction in medium-term policy loans last week.
U.S. Secretary of State Antony Blinken met with China’s top diplomat Wang Yi on Monday. As he wraps up his rare visit to Beijing, all eyes are on whether Blinken would also meet with Chinese President Xi Jinping later in the day.
POWELL TAKES STAGE
After a week in which the stock market cheered the Fed’s decision to skip a rate hike in June, investors are also looking to a number of Fed speakers this week, with Powell set to deliver congressional testimonies on Wednesday and Thursday.
Some officials have already sounded hawkish, and with the dot plot indicating two more hikes, markets are pricing in a 70% probability of the Fed hiking rates by a quarter point in July before holding steady for the remainder of the year..
“Fed Chair Powell gives House and Senate testimony with focus on whether the July FOMC (Federal Open Market Committee) meeting is truly ‘live’, and if the Fed dot plot of two more hikes is a true base case depending on the data or more ‘aspirational’,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC:NABZY).
The Bank of England also meets on Thursday when it is set to raise interest rates by a quarter point to a 15-year high of 4.75%. Markets are betting on the British central bank’s rates rising to nearly 6% this year.
In the currency markets, the dollar index was little changed against major peers at 102.33 on Monday, after falling 1.2% the previous week, the most in five months.
The yen was undermined by a dovish BOJ, touching a seven-month low of 141.97 per dollar, while the hawkish European Central Bank, which hiked rates by a quarter point last week, helped the euro hold near a five-week top at $1.093.
Oil prices tumbled more than 1% on Monday. U.S. crude futures fell 1.5% to 70.74 per barrel, and Brent crude was down 1.4% at $75.52 per barrel.
Gold prices were flat at $1,957.39 per ounce.
