European shares are expected to see modest gains following a slight increase in Asian shares, as the dollar weakens ahead of key inflation data that could impact global monetary policy decisions.
Futures for European and US shares inched higher, while the 10-year Treasury yield remained stable. The MSCI AC Asia Pacific index is on track for a second consecutive day of gains, although it has retreated from earlier highs.
The Bloomberg dollar index declined for the third straight day, losing ground against all major currencies as investors assess the likelihood of US interest rate cuts.
Peter Dragicevich, APAC currency strategist at Corpay, noted that an optimistic market sentiment has weighed on the US dollar. He added that if their projections of a moderation in the US core PCE deflator, improvements in China’s PMIs, or a rebound in euro-zone inflation come true, the dollar could face further downward pressure later in the week.
Chinese property shares initially rose but later fell during the Asian session as Shanghai announced reductions in down-payment ratios and the minimum mortgage threshold. This move reflects the support provided by the central government to the property sector, and traders will closely analyze the impact.
In the upcoming week, market participants will closely monitor the release of inflation data from Australia, Japan, the euro region, and the US. Notably, Japan’s April producer prices exceeded expectations, surging by 2.8% compared to the previous year. Additionally, the European Central Bank is expected to disclose its April CPI expectations later today. Investors will also pay attention to a speech by ECB’s Klaas Knot.
Francois Villeroy de Galhau, a member of the ECB’s Governing Council, has stated that the central bank should consider lowering borrowing costs at both its June and July meetings. This is in contrast to other officials who are hesitant about consecutive rate cuts. The ECB’s Chief Economist, Philip Lane, also mentioned that policy should remain restrictive until 2024, even if there is an interest rate cut next month.
Although a rate cut in June is widely expected, the course of action beyond that is uncertain due to concerns about wage growth and geopolitical factors such as conflicts in the Middle East. Data coming out this week could indicate a slight increase in headline inflation in the eurozone for May.
According to Kyle Rodda, a senior market analyst at Capital.Com Inc., the US market is expected to pick up tonight and the next few days will be influenced by end-of-month flows and the release of the crucial PCE Index. He also mentioned that the current market movement is typical when there is little activity and fewer participants.
On Friday, the Federal Reserve’s preferred gauge of underlying inflation is expected to show some relief. Chair Jerome Powell has emphasized the need for more evidence that inflation is moving towards the 2% target before considering policy adjustments. Throughout this week, several US central bankers including John Williams, Lisa Cook, Neel Kashkari, and Lorie Logan are scheduled to deliver speeches.
In the commodities market, the price of gold stabilized. The price of oil increased as investors turned their attention to the upcoming OPEC+ supply meeting and the anticipated rise in US demand during the summer driving season. Copper continued its upward trend due to China’s intensified efforts to support its property market and the weakening of the dollar. Wheat briefly reached its highest level in over nine months due to concerns about diminishing stockpiles.