SYDNEY: Asian shares got off to a stumbling start on Monday as China's central bank wrong footed markets by skipping on a rate cut, even as data due this week is expected to show the economic recovery there remains fragile.
China reports economic growth data for the fourth quarter and a slew of monthly figures on Wednesday, and investors have become used to being underwhelmed by activity as Beijing drip feeds its stimulus.
Chinese blue chips were little changed in response, having earlier reached their lowest since early 2019.
A holiday in the United States also made for thin trading, but at least there was progress on averting an imminent government shutdown as congressional leaders agreed on another stopgap spending bill.
Japan's Nikkei bucked the chary mood and climbed to a fresh 34-year peak, having already enjoyed stellar gains of 6.6% last week. They closed up 0.91%.
MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.21%, after losing 0.8% last week.
S&P 500 futures and Nasdaq futures were both flat. EUROSTOXX 50 futures added 0.4% and FTSE futures 0.2%.
Earnings season rolls on, with Goldman Sachs and Morgan Stanley among those reporting. Retail sales is the main U.S. data of the week, while the Iowa caucus will be run in frigid weather later on Monday.
There was limited reaction to the victory of the ruling Democratic Progressive Party in Taiwan, which essentially left the status-quo intact and Beijing displeased.
The tensions with China were a reminder that geopolitics will loom over markets this year, with elections across the globe and the threat of a wider conflict in the Middle East.
"For now, we think China is still focused on engineering economic stability," said Damien Boey, chief macro strategist at investment bank Barrenjoey in Sydney.
"The equity risk premium globally needs to rise, but it, and the risk free rate are being suppressed at the moment by central bank response functions to lower inflation."
COUNTING ON RATE CUTS
Futures imply a 75% probability the U.S. Federal Reserve will cut as soon as March, with soft producer price data offsetting a disappointing consumer price report.
Analysts at Barclays noted the Fed's favoured core personal consumption price index looked set to undershoot the CPI.
"Core PCE continuing to run at or below 0.2% m/m is softer than we had expected, with little indication of firming in the near term," said Barclays economist Christian Keller.
"As a result, we bring forward our expectation for the first Fed cut from June to March."
He also suspected Fed Governor Christopher Waller could open the door to an easing at a speech on Tuesday.
The Davos World Economic Forum runs to Friday and is notably packed with European Central Bank speakers, including President Christine Lagarde.
Over the weekend, ECB chief economist Philip Lane said there would have been enough data by June to decide on the first of a likely series of interest rate cuts.
Markets are fully priced for an easing in April and imply a whopping 154 basis points of cuts over 2024.
That dovish outlook has limited the euro's gains on the dollar and it was idling at $1.0956 on Monday, having barely budged last week.
The dollar has fared somewhat better on the yen, as a run of subdued Japanese data gave the Bank of Japan reason to stick with its uber-easy policies. The dollar edged up further to 145.18 yen, and toward last week's top of 146.41.
The prospect of lower rates globally was underpinning non-yielding gold at $2,054 an ounce, following a 1% jump on Friday.
Oil prices had got some lift from disruptions to shipping in the Red Sea, though worries about demand this year have limited the rally.
The U.S. military said fighter aircraft had shot down a cruise missile fired from Houthi militant areas on Sunday.
Brent added 15 cents to $78.44 a barrel, while U.S. crude rose 7 cents to $72.75 per barrel. - Reuters
