World shares cheer China data, as central banks line up

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© Reuters. A teller sorts U.S. dollar banknotes inside the cashier’s booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya
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By Nell Mackenzie

LONDON (Reuters) -Wall Street futures ticked up ahead of a raft of central bank meetings this week that could see the end of free money in Japan and a slower glide path for U.S. rate cuts.

At 1215 GMT, S&P 500 e-minis EScv1 were up 40 points, or 0.8%, and Nasdaq 100 e-minis NQcv1 were up about 219 points, or 1.2%.

The U.S. Federal Reserve is considered certain to keep rates at 5.25-5.5%, but there is a possibility it might signal a higher-for-longer outlook on policy, given the stickiness of inflation at both consumer and producer levels.

“Recent U.S. data indicate gradual steps towards increasing inflation risks,” Dana Malas, a strategist at SEB Bank, said in a note.

“That the road to 2% would be straight is wishful thinking; setbacks are inevitable. Disinflationary forces are still stronger than inflationary pressures,” she said.

The probability of a U.S. rate cut as early as June has dropped to 56%, from 75% a week earlier, and the market has only 72 basis points of easing priced in for 2024 compared to more than 140 basis points a month ago.

This sent two-year Treasury yields up to 4.71%, after they climbed 24 basis points last week, while 10-year yields stood at 4.308%. [US/]

The Fed is also expected this week to start talking about how it might slow the pace of its bond sales, perhaps halving it to $30 billion a month.

A number of other central banks including in Japan, Britain, Switzerland, Norway, Australia, Indonesia, Taiwan, Turkey, Brazil, and Mexico also meet this week and, while many are expected to hold steady, there is plenty of scope for surprises.

Tuesday could see Japan end the longest run of negative interest rates in history, after its companies decided on the biggest pay hikes in 33 years.

However, there is a chance the Bank of Japan might wait for its April meeting, given it will be issuing updated economic forecasts then.

Regardless of how this week’s policy decision goes, UBS analysts expect no huge market moves after the result.

“With the various media reports and somewhat hawkish speeches by the board members, the policy revision has probably been priced in already,” said a note by UBS economist Masamichi Adachi.

Markets currently assume the BOJ will hike at a snail’s pace and have a rate of 0.27% priced in by December, compared with the current -0.1%.

Japan’s central bank on Monday said it would conduct an unscheduled operation to buy bonds, presumably to head off any significant rise in yields and avoid market volatility.

That might have added to headwinds that pushed the yen lower last week, with the dollar up at 149.09 yen. The euro stood at $1.0902 at 1222 GMT, having eased 0.5% last week and away from a top of $1.0963.

Earlier in the day, Asian markets closed higher after Chinese data beat expectations.

Japan’s Nikkei closed up 2.7%, while Shanghai’s blue chip index finished up about 1%.

ACROSS THE POND

European stocks steadied after they ticked up 0.1% at the open, rising in parallel with MSCI’s broadest index of stocks, which was up about 0.2% at 1222 GMT.

The Bank of England meets on Thursday and is expected to keep rates at 5.25% as wage growth cools, while markets see some chance the Swiss National Bank might ease this week.

The ascent in the dollar and yields has taken little shine off gold, which rose 0.3% to $2,162.69 an ounce, having fallen 1% last week and away from all-time highs. [GOL/]

Oil prices have had a better run after the International Energy Agency raised its view on 2024 oil demand, while the supply outlook was clouded by Ukrainian strikes on Russian oil refineries. [O/R]

Brent added 29 cents to $85.63 a barrel, while U.S. crude rose 32 cents to $81.36 per barrel. [O/R]