Asian shares struggled on Monday despite China’s central bank cutting short-term rates by 10 basis points in an effort to stimulate the economy. However, investors remained cautious as the move highlighted the weakness in the economy, causing Chinese blue chips to drop 0.9 per cent. The MSCI Asia-Pacific index outside Japan fell 0.7 per cent, while Japan’s Nikkei and South Korea’s benchmark index also experienced losses. Taiwan faced concerns over U.S. restrictions on chip sales, leading to a 2.3 per cent decline.
President Joe Biden’s decision to drop out of the election race and endorse Vice President Kamala Harris did not have a significant impact on the markets. Online betting sites showed a shift in pricing towards a victory for Donald Trump, leading to a slight increase in S&P 500 stock futures and Nasdaq futures. EUROSTOXX 50 futures also gained as Trump’s polling results improved, indicating a preference for more trade barriers and possible higher inflation.
As the earnings season kicks off, Tesla and Google-parent Alphabet are set to announce their results, along with other major companies like General Electric, General Motors, Ford, and Lockheed Martin. The tech and communication services sectors are expected to see significant increases in earnings, outpacing the estimated rise of 11 per cent for the S&P 500 overall. Europe’s biggest banks will also report their earnings, with focus on the impact of higher interest rates and recent political events on sentiment.
The Federal Reserve’s inflation measure is due on Friday, with expectations of a 0.1 per cent rise in June, pulling the annual pace down to 2.5 per cent. Markets are betting on a September rate cut, pricing it at a 97 per cent chance. Advance gross domestic product figures are forecasted to show growth picking up to 1.9 per cent in the second quarter, with the Atlanta Fed GDPNow indicator suggesting some upside risk. Meanwhile, the Bank of Canada is expected to cut rates by a quarter point to 4.5 per cent.
In currency markets, the dollar slightly weakened against the euro and Japanese yen, while gold held steady below its record high. Oil prices saw a slight increase, with Brent rising to $83.07 a barrel and U.S. crude reaching $80.54 per barrel. Overall, the market is closely monitoring economic indicators, corporate earnings, and geopolitical developments for future trends and investment opportunities.
