By Wayne Cole
SYDNEY (Reuters) – Asian shares rose cautiously on Monday but the dollar and bond yields were trending lower ahead of inflation data that investors hope will pave the way for interest rate cuts in the United States and Europe.
Oil prices rose 0.7 percent after Israel and Hezekiah exchanged rocket fire and airstrikes on Sunday, raising concerns about possible supply disruptions if the conflict escalates.
Brent crude rose 51 cents to $79.53 a barrel, while U.S. crude rose 50 cents to $75.33 a barrel. (O/R)
Investors are anxiously awaiting earnings from AI darling Nvidia on Wednesday to see whether it can live up to sky-high expectations.
The company's shares have risen about 150% since the beginning of the year, accounting for about a quarter of the S&P 500's 17% gain so far this year.
“Nvidia will beat consensus estimates, it always does, but investors are expecting revenue to beat the analyst consensus by more than $2 billion, and if it doesn't, the news could well lead to selling,” said Chris Weston, head of research at brokerage Pepperstone.
That means Nvidia would need to report revenue of more than $30 billion and a third-quarter outlook of more than $33 billion, he added.
Early Monday morning, S&P 500 futures and Nasdaq futures were down 0.1%. (.N)
MSCI's broadest index of Asia-Pacific shares ex-Japan rose 0.4% after rising 1.1% last week, with South Korea adding 0.3%.
Japan's Nikkei stock average fell 0.7 percent as a stronger yen pressured export shares.
The yen surged on Friday after the dollar weakened after Federal Reserve Chairman Jerome Powell said it was time to start easing monetary policy and stressed that he did not want to allow the labor market to weaken further.
“Significantly, the 'gradual/gradualism' and other caveats used by other Fed officials were notably absent,” said Tapas Strickland, head of market economics at the NAB.
“The Sept. 6 jobs report is clearly important, and Powell is open to cutting rates to avoid downside risks to employment and keep the labor market strong,” he added. “In essence, Powell has made a soft landing more likely.”
A ton of cuts coming
U.S. consumer spending and core inflation figures are due on Friday, along with a flash inflation reading from the European Union, and analysts generally expect the data to be mild enough to allow for a rate cut in September.
Federal funds rate futures are fully pricing in a quarter-point cut at the Sept. 18 meeting, suggesting a 36% chance of a larger, 50-basis-point cut. The market is also pricing in 103 basis points of easing this year and 122 basis points of easing by 2025.
The story continues
“We continue to expect the FOMC to deliver three consecutive 25 basis point rate cuts at its September, November and December meetings,” Goldman Sachs analysts said.
“Our forecast is based on the assumption that August's employment report will be stronger than July's, but we continue to believe that a 50 basis point cut is likely if August's report is weaker than expected.”
Markets are also fully pricing in a quarter-point rate cut from the European Central Bank next month, for a total of 163 basis points of easing by the end of 2025.
The yield on the two-year Treasury note fell about 10 basis points on Friday to 3.91%, while the yield on the 10-year note remained at 3.79%. (US/)
The dollar weakened further by 0.3% to 143.97 yen after losing 1.3% on Friday. The euro rose to $1.1190, near a 13-month high, while the Swiss franc held firm at 0.8472 per dollar. (USD/)
A weak dollar combined with falling bond yields helped gold prices hover at $2,516 an ounce, nearing an all-time high of $2,531.60. (GOL/)
(Reporting by Wayne Cole; Editing by Sri Navaratnam)
