Asian stocks take a breather from their recent rally as attention turns to China’s potential stimulus measures and the upcoming testimony from U.S. Federal Reserve Chair Jerome Powell. European markets are also expected to open lower, with Euro Stoxx 50 futures down 0.7%. U.S. markets are closed for the Juneteenth holiday, and Wall Street futures remain mostly flat in Asian trading.
The Asia-Pacific shares outside Japan, represented by MSCI’s broadest index, slipped 0.8% on Monday. However, they had experienced their best week since January, gaining 3% and reaching a four-month high in the previous session.
Japan’s Nikkei, after hitting a three-decade high on Friday, dropped 1.3%. The Bank of Japan’s decision to maintain its accommodative policy stance had boosted the market, leading to the yen reaching a seven-month low against the U.S. dollar.
In China, expectations for robust stimulus measures grew, but investors were disappointed by the lack of specific details following a cabinet meeting on Friday. China’s blue-chip stocks declined by 0.8%, and Hong Kong’s Hang Seng index slumped 1.6%.
Goldman Sachs recently revised down its forecast for China’s GDP growth from 6.0% to 5.4%. Other major banks have also lowered their growth projections for the world’s second-largest economy. According to Goldman analysts, the Chinese economy is currently grappling with a struggle between diminishing growth momentum and the limitations policymakers face in delivering significant stimulus due to economic and political factors.
It is widely anticipated that the People’s Bank of China will lower its benchmark loan prime interest rates on Tuesday, following a similar reduction in medium-term policy loans last week.
Meanwhile, U.S. Secretary of State Antony Blinken’s visit to Beijing is coming to a close, with attention focused on whether he will have a meeting with Chinese President Xi Jinping.
Looking ahead, investors are keenly awaiting the congressional testimonies of Federal Reserve Chair Jerome Powell on Wednesday and Thursday. After the market’s positive response to the Fed’s decision to forgo a rate hike in June, investors will be monitoring various Fed speakers throughout the week. The market is currently pricing in a 70% probability of a quarter-point rate hike in July, with the dot plot indicating the possibility of two more hikes this year.
The Bank of England is also scheduled to meet on Thursday, with expectations of a quarter-point interest rate increase, bringing rates to a 15-year high of 4.75%. Market expectations suggest that the British central bank’s rates could rise to nearly 6% by the end of this year.
In the currency markets, the dollar index remains relatively stable against major counterparts at 102.33, following a 1.2% decline the previous week. The yen weakened due to the dovish stance of the Bank of Japan, touching a seven-month low of 141.97 per dollar. The euro, supported by the European Central Bank’s rate hike last week, held near a five-week high at $1.093.
Oil prices experienced a decline of more than 1% on Monday, with U.S. crude futures falling 1.5% to $70.74 per barrel, and Brent crude down 1.4% at $75.52 per barrel.
Gold prices remained unchanged at $1,957.39 per ounce.