Central banks are preparing to cut rates - is our economy ready for it? Video/ Carson Bluck
Asian shares crept cautiously higher on Monday, while the dollar and bond yields were on the wane ahead of inflation data that investors hope will pave the way for rate cuts in the United States and Europe.
Oil prices climbed 0.7% after Israel and Hezbollah traded rocket salvos and air strikes on Sunday, stirring worries about possible supply disruptions if the conflict escalated.
Brent rose 51 cents to $US79.53 a barrel, while US crude added 50 cents to $US75.33 per barrel.
Investors are also anxiously awaiting earnings from AI darling Nvidia on Wednesday to see if it can match the market’s uber-high expectations.
The stock is up some 150% in the year to date, accounting for around a quarter of the S&P 500′s 17% year-to-date gain.
“Nvidia will beat consensus expectations, they always do, but investors are so ingrained in seeing revenue come in $US2 billion (NZ$3.21b) plus above the analysts’ consensus or we could easily see a sell the news event,” said Chris Weston, head of research at broker Pepperstone.
That means Nvidia would have to report sales of $US30b or more and guidance for Q3 of $US33b or above, he added.
Early Monday, S&P 500 futures and Nasdaq futures were down 0.1%.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.4%, after rising 1.1% last week, while South Korea rose 0.3%.
Japan’s Nikkei eased 0.7% as a stronger yen pressured exporter stocks.
The yen had jumped on a broadly weaker dollar on Friday after Federal Reserve Chair Jerome Powell said the time had come to start easing policy and emphasised that the central bank did not want to see further weakening in the labour market.
Jerome Powell has said the time had come to start easing policy. Photographer/ Al Drago, Bloomberg via Getty Images
“Importantly there was a notable absence of caveats such as ‘gradual/gradualism’ as used by other Fed officials,” noted Tapas Strickland, head of market economics at NAB.
“The jobs report on September 6 is clearly important as Powell is willing to cut rates to ward off downside risks to employment and to maintain a strong labour market,” he added.
Figures on US personal consumption and core inflation are due on Friday, along with a flash reading on European Union inflation.
Analysts generally assume the data will be benign enough to allow for rate cuts in September.
Fed fund futures are fully priced for a quarter-point cut at the September 18 meeting, and imply a 36% chance of an outsized move of 50 basis points. T
he market also has 103 basis points of easing priced in for this year and another 122 basis points in 2025.
“We continue to expect the FOMC to deliver an initial string of three consecutive 25bp cuts at the September, November, and December meetings,” said analysts at Goldman Sachs.
“Our forecast rests on our assumption that the August employment report will be stronger than the July report, but we continue to think that if instead the August report is weaker than we expect, then a 50bp cut would be likely.”
Markets are also fully priced for a quarter-point cut from the European Central Bank next month, and a total 163 basis points of easing by the end of 2025.
Yields on two-year Treasuries stood at 3.91%, having fallen almost 10 basis points on Friday, while 10-year yields held at 3.79%.
The dollar slipped a further 0.3% to 143.97 yen, having fallen 1.3% on Friday. The euro was up at $US1.1190 and just off a 13-month top, while the Swiss franc held firm at 0.8472 per dollar.
A softer dollar combined with lower bond yields to underpin gold at $US2,516 an ounce, and near an all-time peak of $US2,531.60 ($A3,724.58).
