Asian shares subdued after brutal central bank week

SYDNEY  – Asian shares were hesitant on Monday after central banks last week reinforced the message that interest rates will stay higher for longer, while investors braced for inflation data from the U.S. and Europe.

Markets will also be looking for further clues on whether China’s economy is regaining traction.

The yen nursed losses at more than nine-month lows at 148.38 per dollar, after the Bank of Japan made no change to its dovish monetary policy. Ten-year Japanese bond yields settled at a decade high of 0.745 percent.

READ: Global central banks unite in ‘higher for longer’ credo

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1 percent on Monday, after a 2.3- percent fall the previous week to fresh ten-month lows. A surge in Chinese shares on Friday helped the index trim earlier losses.

Japan’s Nikkei was up 0.2 percent. Both S&P 500 futures and Nasdaq futures rose 0.1 percent.

Chinese shares surged 1.8 percent on Friday amid hopes of improving growth in the world’s second largest economy. The big test in the week ahead would be the industrial profit figures on Wednesday, as well as manufacturing and services PMIs on Saturday.

READ: ‘Higher for longer’ interest rates remain a threat to US stocks

A week-long holiday starting on Friday in China will also be a key test of whether consumer confidence and spending is starting to revive.

Bond investors were still smarting from the U.S. Federal Reserve’s more hawkish rate projections last week, which had caught markets by surprise. Coupled with the recent economic resilience in the U.S. economy, markets ramped up bets that interest rates would stay higher for longer and drastically scaled back rate cut expectations.

Much will depend on the U.S. data. In a sign of slowing growth, U.S. business activity was basically at a stand still in September, with the vast services sector essentially idling at the slowest pace since February.

Bruce Kasman, chief economist at JPMorgan, expects good news from U.S. and European inflation results this week.

“First, US real PCE spending is expected to flatten in August, suggesting that a mid-year surge is ending, and overall growth is set to moderate into year-end. Second, both the US and Euro area should deliver low core inflation readings,” he said in a client note.

The Fed’s favored inflation gauge, the core Personal Consumption Expenditures Price Index, is expected to show on Thursday a 0.2 percent monthly increase for August, unchanged from July. Other U.S. data in the week includes final Q2 GDP, and weekly jobless claims.

In the currency markets, the U.S. dollar was still standing strong near its six month top at 105.58 against a basket of major currencies.

Ten-year Treasury yields were little changed at 4.4519 percent, after easing from a 16-year high of 4.508 percent on Friday. Two year yields settled at 5.1140%, having fallen from a 17-year top of 5.2020 percent hit last week.

Oil prices were higher on Monday, not far from their 10-month highs. Brent crude futures rose 0.5 percent to $93.73 per barrel and U.S. West Texas Intermediate crude futures were also up 0.5 percent at $90.47.

The gold price was flat at $1,923.88 per ounce.