Asian stocks halted their rally, looking forward to stimulating China, Powell’s testimony

SYDNEY (Reuters) – Asian stocks started cautiously on Monday after their best week in five months, as investors looked to China’s interest rate decision and testimony from US Federal Reserve Chairman Jerome Powell for clues on the way ahead.

Both the S&P 500 and Nasdaq futures were mostly flat after the bullish trend on Wall Street ran into resistance on Friday. US Treasuries were out of circulation due to the June holiday, while futures contracts were largely flat.

In Asia, Japan’s Nikkei (.N225) fell 0.4%, after grabbing a three-decade high on Friday, supported by the Bank of Japan (BOJ) leaving its ultra-easy policy unchanged, sending the yen up by 7 months. low against the US dollar.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.6%, after hitting a four-month high on Friday and ending up 3% for the week, the best since January.

Chinese blue chips (.CSI300) declined 0.5% while Hong Kong’s Hang Seng Index (.HSI) declined 0.6%.

In China, hopes are high for more aggressive stimulus after the cabinet meeting on Friday to discuss measures to stimulate economic growth, but concerns remain about whether it will be enough to revive the ailing economy.

The People’s Bank of China is widely expected to cut key lending rates on Tuesday, following a similar cut in medium-term policy loans last week.

Morgan Stanley expects an imminent stimulus package, including easing restrictions on real estate purchases in first-tier cities, more infrastructure support and targeted consumption support.

“Given that Q2 GDP growth tracks at 0%, a strong sequential re-acceleration of full-year GDP growth will be needed to reach the government’s target of ‘around 5%’,” said China’s chief economist Robin Xing.

Several major banks last week lowered their forecasts for growth in China after the latest disappointing data.

US Secretary of State Antony Blinken will end his rare visit to China on Monday, as investors wait to see if he will meet Chinese President Xi Jinping, which is likely to be seen as a positive sign in the frothy relations between the world’s two largest countries. economies.

Powell takes the stage

After a week in which the stock market cheered the Fed’s decision to skip a June rate hike, investors are also looking forward to a number of Fed speakers this week, with Powell set to deliver congressional testimony on Wednesday and Thursday.

Some officials have already sounded hawkish, and with a point chart pointing to two more hikes, markets are pricing in a 70% chance of the Fed raising interest rates by a quarter point in July before they hold steady for the remainder of the year. .

“Federal Reserve Chair Powell presents House and Senate testimony with a focus on whether the July FOMC meeting was really ‘live’, and whether the Fed’s conspiracy of two more hikes is a true underlying case based on data or more,” Wray said. Atrell, Head of Foreign Exchange Strategy at National Australia Bank: “Ambition.”

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 that the Bank of England’s interest rates will rise to close to 6% this year.

The dollar index was little changed against its major peers at 102.34 early Monday, after falling 1.2% in the previous week, the largest decline in five months.

The yen was undercut by the Bank of Japan, touching a seven-month low of 141.90 per dollar, while the hawkish European Central Bank, which raised interest rates by a quarter point last week, helped the euro stay near a five-week high of $1,094. .

Oil prices fell more than 1% on Monday. US crude futures fell 1.0 percent to $71.03 a barrel, and Brent crude fell 1.3 percent to $75.63 a barrel.

Gold prices decreased by 0.1%, at $1,955.77 an ounce.

Reported by Stella Q; Editing by Christopher Cushing and Tom Hogg

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