Asian stock markets are poised for gains on Tuesday, following a day of mixed performance in the US markets and a decline in Treasury bonds, as investors await crucial inflation data.
Equity futures in Tokyo, Hong Kong, and Sydney are trending upwards. Meanwhile, US 10-year Treasury yields have reached their highest point since November, nearing the critical 4.5% mark. This shift indicates a growing skepticism among traders about the Federal Reserve's potential for three quarter-point rate cuts this year, now expecting only two.
Analysts predict that the upcoming consumer price index report will reveal a slight relief in inflation pressures. However, the core inflation rate, which excludes volatile food and energy prices, is anticipated to have risen by 3.7% year-over-year, surpassing the Fed's 2% target.
Morgan Stanley strategists highlight the significance of the US core inflation data in determining the direction of the markets and the likelihood of a rate cut in June.
The benchmark 10-year yields have increased by two basis points to 4.42%, with the S&P 500 remaining steady near 5,200. In the tech sector, Nvidia Corp. saw a decrease, whereas Tesla Inc. experienced a near 5% increase. Additionally, oil prices dropped following Israel's announcement of troop withdrawals from Gaza, and Bitcoin's value exceeded $71,000.
Investors are closely monitoring this week's inflation data, with some Federal Reserve officials expressing concerns about reducing rates amidst persistent inflation. A third consecutive month of higher-than-expected inflation could prompt a reevaluation of rate cut plans.
JPMorgan Chase & Co. economists have delayed their forecast for the Fed's first rate cut, now anticipating it in July rather than June, due to a robust March jobs report.
Despite expectations for monetary policy easing, the current economic indicators do not strongly suggest imminent rate cuts. With a solid labor market and rising commodity prices, the Federal Reserve may delay rate adjustments.
Swap contracts currently imply about 60 basis points of US monetary easing this year, with the first cut expected by September. However, the possibility of a third cut remains uncertain.
JPMorgan strategists anticipate a decrease in US 10-year yields amid high geopolitical risks but warn of inflation remaining elevated. This scenario could pressure stocks, especially those with high financing costs.
As the first-quarter earnings season approaches, Wall Street expects modest growth, predicting the smallest year-over-year profit increase for S&P 500 companies since 2019, at just 3.9%. However, these projections may be conservative, as seen in the previous quarter's better-than-expected results.
With inflation's resilience casting doubt on the timing of rate cuts, earnings will play a crucial role in driving future market gains. Investors are advised to remain cautious until clear signs of earnings growth emerge.
Wells Fargo Securities' Christopher Harvey has set the highest S&P 500 target for 2024, optimistic about the US equity rally's continuation. Harvey cites artificial intelligence advancements and an improved earnings outlook as key growth drivers.
Corporate Highlights:
- Tesla Inc. is gearing up to reveal its much-anticipated robotaxi amidst challenges in sales and increased competition.
- 99 Cents Only Stores LLC has declared bankruptcy, following its announcement to cease operations.
- Apartment landlords' stocks have surged after Blackstone Inc.'s increased investment in the sector.
- United Airlines Holdings Inc. postpones new routes due to growth limits during a safety review.
- Spirit Airlines Inc. unveils a major cost-cutting initiative after its merger with JetBlue Airways Corp. was blocked over antitrust issues.
- Taiwan Semiconductor Manufacturing Co. receives significant financial support from the US for Arizona factory expansions.
- Alibaba Group Holding Ltd. slashes cloud service prices globally, battling competition and seeking growth revival.
Key events to watch this week include various global financial reports and central bank decisions, which could impact market movements.
Investors are keeping an eye on several market indicators, including futures in major Asian stock markets, the Bloomberg Dollar Spot Index, and commodity prices, as they navigate through a week filled with important economic updates.
This report was compiled using Bloomberg's automated technology.
