Asian shares drop as investors brace for central bank-packed week

SYDNEY: Asian shares fell and the dollar was firm on Monday as investors looked ahead to policy meetings from the Federal Reserve, the Bank of Japan and other central banks this week.

Europe is set for a subdued open, with EUROSTOXX 50 futures off 0.1%. S&P 500 futures advanced 0.2% while Nasdaq futures edged up 0.1%.

Oil prices hit fresh 10-month peaks, further stoking inflationary pressures. U.S. West Texas Intermediate crude futures gained 0.8% to $91.52, their highest level since November, while Brent crude futures rose 0.7% to $94.55 per barrel.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7%. Japan’s Nikkei is closed for a public holiday.

Technology shares in the region retreated, with Taiwan’s TSMC, the world’s top contract chipmaker, falling 3% after Reuters reported that it has told its major suppliers to delay the delivery of high-end chipmaking equipment

In China, better-than-expected factory output and retail sales in the world’s second largest economy have aided Chinese bluechips which were up 0.4%.

But property sector woes dragged Hong Kong’s Hang Seng 1% lower.

Zhongrong International Trust, which has exposure to Chinese property developers, said over the weekend it was unable to make payments on some trust products on time.

“Despite the encouraging sign of stabilization, the property market continues to be the missing puzzle piece in the economic picture,” said Tommy Xie, head of Greater China Research at OCBC Bank.

“The on-the-ground feedback indicates a rise in property viewing activities; however, most prospective buyers are not in a hurry to finalize deals due to the increasing supply of apartments post relaxation.”

Shares in embattled China Evergrande Group fell as much as 25% after police in southern China detained some staff at its wealth management unit, though they later pared losses to be down 1.6%.

This week, global central banks will take centre stage, with five of those overseeing the 10 most heavily traded currencies holding rate-setting meetings. A swathe of emerging market central banks will also hold meetings.

Markets are fully priced for a second straight pause from the Fed on Wednesday, with its targeted range expected to be unchanged at 5.25% to 5.5%, so the focus will be on the updated economic and rates projections. They see about 80 basis points of cuts next year.

“In theory, the FOMC meeting should be a low-volatility affair, but it is a risk that needs to be managed,” said Chris Weston, head of research at Pepperstone.

Weston added that if the Fed revises up its rate projections for 2024, that would see rate cuts being priced out, resulting in renewed interest in the U.S. dollar and downward pressure on global shares.

On Thursday, Bank of England is tipped to hike for the 15th time and take benchmark borrowing costs to 5.5%.

Bank of Japan is the key risk event on Friday. Markets are looking for any signs that the BOJ could be moving away from its ultra-loose policy faster than previously thought, after recent comments by Governor Kazuo Ueda sent yields much higher.

Last Friday, Wall Street ended sharply lower as U.S. industrial labour action weighed on auto shares. Rising Treasury yields also pressured Amazon and other megacap growth companies.

Cash Treasuries were not traded in Asia with Tokyo shut. Treasury yields edged higher on Friday, with the two-year above the 5% threshold.

In the currency markets, the U.S. dollar was still standing strong near its six-month top at 105.25 against a basket of major currencies.

The euro gained 0.1% to $1.0667, after slumping to a 3-1/2 month low of $1.0632 last week as the European Central Bank signalled its rate hikes could be over.

The price of gold was 0.2% higher at $1,928.13 per ounce. – Reuters