Asian shares inch higher amid expectation of European rate cut

Sydney — Asian shares edged higher on Tuesday while the dollar remained on the back foot for a third consecutive session, as the heightened expectation of an imminent European rate cut helped whet risk appetite.

Gains were limited ahead of key inflation readings this week.

Europe is set for a slightly stronger open, with Eurostoxx 50 futures up 0.2%. That would build on gains overnight after a slew of European Central Bank (ECB) officials said the ECB has room to lower interest rates as inflation slows.

With debate now shifting to subsequent moves, markets have fully priced in two rate cuts by October 2024. That in turn guided Wall Street stock futures higher ahead of the reopening of US markets after a public holiday.

S&P 500 futures rose 0.1% and Nasdaq futures gained 0.2%.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2% after a 0.9% increase on Monday. Taiwanese shares climbed 0.5% to a record high, while Hong Kong’s Hang Seng index trimmed some earlier gains to be up 0.1%.

Japan’s Nikkei, on the other hand, slipped 0.2%, reversing some of a 0.7% advance a day ago.

“We’re heading into the northern hemisphere summer season. Traditionally that’s a time when markets just tend to get in that drift mode,” said Tony Sycamore, an analyst at IG.

Sycamore believes the Hang Seng has further to run higher after a recent leg up, as data is likely to support further improvements in the Chinese economy. China will release surveys of manufacturing and services activity for May on Friday.

“I like the idea of getting back into that trade on pullbacks and that’s something where I think it’s got further upside whereas the Nikkei to me there are question marks now hanging over that market.”

He said that the Nikkei had failed to get back to near its record high in March and that there were signs that market participants were starting to take money out of the benchmark to invest in Chinese markets.

The big risk events this week are not due until Friday when US figures on core personal consumption expenditures (PCE) — the Federal Reserve’s preferred measure of inflation — and eurozone inflation data will set the tone for trading.

In foreign exchange markets, the dollar was on the back foot for a third consecutive session, last down 0.1% against its major peers, as traders awaited the PCE release.

The median forecast for April is a 0.3% rise over the previous month, while year-on-year expectations are for a 2.8% climb, with risks on the downside.

The Japanese yen steadied at ¥156.78 to the dollar, just a touch stronger than the key ¥157 level. It, however, kept weakening against a slew of high-yielding currencies, with the New Zealand dollar hitting a fresh 17-year top of ¥96.56 on Tuesday.

Thanks to the strong carry demand, the kiwi hit a two-and-a-half-month high of $0.6155.

The cash treasuries market returned from a holiday with little movement after taking a hit last week.

Two-year yields fell 1.6 basis points (bps) to 4.9375%, having surged 13bps the previous week, while the 10-year yield slipped 1bp to 4.4610%, after rising 5bps the week before.

Oil prices extended gains from the previous session. Brent futures rose 0.2% to $83.23 a barrel. US crude futures for July were at $78.84 a barrel, up 1.4% from Friday’s close, having traded through the US holiday.

Gold prices climbed for a third day, up 0.1% at $2,352.20/oz.

Reuters