Asian stocks brace for US inflation, euro rises on ECB bets

A man passes through a screen displaying a chart showing the recent average movements of the Nikkei stock index outside a brokerage in Tokyo, Japan, December 30, 2020. REUTERS/Issei Kato/File Photo

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  • Asian stock markets:
  • The Nikkei fell 0.3%, the S&P 500 fell more steady
  • The euro rose to a 7-year high against the yen ahead of the European Central Bank meeting
  • US CPI report to test market thinking on Fed increases
  • Oil jumps after Saudi Arabia raises prices

SYDNEY, June 6 (Reuters) – Asian stocks had a muted start on Monday as caution remained ahead of a monetary reading of US inflation, while the euro rose against the yen on bets that the European Central Bank will take a major step toward tightening policy. week.

Oil prices jumped in early trading after Saudi Arabia sharply raised its sales prices for crude in July, an indication of how tight supply is even after OPEC+ agreed to speed up its production increases over the next two months.

MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) Japan’s Nikkei fell 0.1%. (.N225) down 0.3%. S&P 500 and Nasdaq futures rose 0.1%.

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Markets will be very alert to the US consumer price report on Friday, especially after inflation in the European Union shocked many to a record high last week.

Expectations are for a sharp rise of 0.7% in May, although the annual pace is expected to hold at 8.3% while core inflation is expected to slow slightly to 5.9%.

The high number will only heighten expectations of a hard tightening by the Federal Reserve with markets already pricing in a half point hike in June and July and nearly 200 basis points by the end of the year.

Some analysts believe Friday’s upbeat jobs report indicates that the Fed is on track for a soft landing.

“May numbers came in as good as the Fed expects,” said Jonathan Millar, an economist at Barclays.

“It’s a good sign that the Fed’s plans to cool the labor market are playing a positive role so far, with strong gains in employment continuing to generate steady income gains that should help calm recession fears, for the time being.”

Not so negative

The European Central Bank meets on Thursday and President Christine Lagarde is believed to certainly confirm the end of bond buying this month and raise interest rates for the first time in July, although the jury is out on whether that will be 25 or 50 basis points.

Money markets were priced at 125 basis points of gains by the end of the year, and 100 basis points in October.

“Recent calls from ECB officials are looking at 25 basis point increases in July and September to break out of negative rates by the end of the third quarter, although some members would prefer to leave the door open for larger 50 basis point increases,” said the NAB analyst. . “Lagarde’s press conference after the meeting will be closely watched.”

The possibility of an interest rate shift this year helped the euro to stabilize at $1.0722, away from recent lows of $1.0348, although it struggled to remove resistance around $1.0786.

The euro also hit a seven-year high against the yen at 140.35, after rising 2.9% last week, while the dollar rose at 130.84 yen after rising 2.9% last week.

Against a basket of currencies, the dollar settled at 102.110 after rising 0.4% last week.

In the commodity markets, gold remained stuck at $1,852 an ounce after holding in a tight range for the past two weeks.

Oil prices got an additional boost after Saudi Arabia set a higher price for shipments to Asia, while investors are betting that OPEC’s supply increases will not be enough to meet demand, especially as China eases lockdowns.

“Maybe a third to half of what OPEC+ promised will be rolled out over the next two months,” said Vivek Dhar, a mining and energy analyst at CBA.

“While this increase is badly needed, it falls short of demand growth expectations, especially considering also the partial EU embargo on Russian oil imports. We see upside risks to our near-term Brent crude price outlook at 110 US dollars per barrel.

In fact, Brent crude has already surpassed that adding $1.61 on Monday to reach $121.33 a barrel. The price of US crude rose another 1.56 dollars to 120.43 dollars a barrel.

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Reporting from Wayne Cole. Editing by Sam Holmes

Our criteria: Thomson Reuters Trust Principles.