Asia in wary mood for US inflation, earnings tests
Bond markets were still shaky after a recent vicious sell-off drove yields to multi-year highs across the developed world, making equities less attractive in comparison. The surge in yields put pressure on popular carry trades in the currency market which saw the Japanese yen rally sharply late last week, largely at the expense of the U.S. dollar.
The cross currents made for an uncertain background and MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.1% in early trade. Japan's Nikkei firmed 0.3%, while South Korea added 0.1%. S&P 500 futures and Nasdaq futures were both little changed, having retreated modestly last week.
Earnings season starts later this week with JPMorgan Chase, Citigroup, Wells Fargo, State Street and PepsiCo among the names reporting. «Consensus expects a 9% year/year decline in S&P 500 EPS driven by flat sales growth and margin compression,» noted analysts at Goldman Sachs. «We expect companies will be able to meet the low bar set by consensus,» they added.
«Negative EPS revisions for 2023 and 2024 appear to have bottomed and revision sentiment has improved.» This week also has major data on U.S. consumer prices which is forecast to show headline inflation slowed to its lowest level since early 2021 at 3.1%, with the core easing to 5.0%. Markets still think the Federal Reserve is likely to hike rates later this month, but a weak CPI might lessen the risk of yet a further move in September.
Currently futures imply around a 90% probability of a rise to 5.25-5.5% this month, and a 24% chance of a move in September. Fed officials have been mostly hawkish in their communications, while market have also priced in higher rates in Europe and the UK. Canada's central bank meets this
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