Asian stocks halted their rally, looking forward to stimulating China, Powell’s testimony

SYDNEY (Reuters) – Asian stocks fell on Monday, extending gains after their best weekly performance in five months, while investors looked to China’s interest rate decision and testimony from US Federal Reserve Chairman Jerome Powell for clues on the way ahead.

Europe is set to extend its decline when markets open there, with the Eurozone Stoxx 50 futures down 0.7%. US markets are closed for the Juneteenth holiday, with Wall Street futures settling mostly in Asia.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.8% on Monday, after hitting a four-month high in the previous session and ending up 3% for the week, the best since January.

Japan’s Nikkei (.N225) fell 1.3%, after snapping a three-decade high on Friday, supported by the Bank of Japan (BOJ), leaving its ultra-easy policy stance unchanged, sending the yen to a fresh low in 7 months against the US dollar. U.S. dollar.

Treasury cash was out of circulation, while futures contracts rose by a fraction amid tight liquidity.

In China, hopes for more aggressive stimulus were building, but the lack of specific details from Friday’s cabinet meeting disappointed investors. China’s blue-chip index (.CSI300) declined 0.8%, while Hong Kong’s Hang Seng Index (.HSI) declined 1.6%.

Goldman Sachs on Sunday cut its forecast for China’s gross domestic product growth this year to 5.4% from 6.0%, joining other major banks in lowering growth forecasts for the world’s second-largest economy.

“At this juncture, the economy is going through a struggle between declining growth momentum and increasing policy support,” Goldman analysts said.

“We judge that headwinds to growth are likely to persist while policymakers are constrained by economic and political considerations in providing meaningful stimulus.”

The People’s Bank of China is widely expected to cut key lending rates on Tuesday, following a similar cut in medium-term policy loans last week.

US Secretary of State Antony Blinken met with China’s top diplomat Wang Yi on Monday. As he wraps up his rare visit to Beijing, all eyes are on whether Blinken will also meet with Chinese President Xi Jinping later in the day.

Powell takes the stage

After a week in which the stock market cheered the Fed’s decision to skip a June rate hike, investors are also looking forward to a number of Fed speakers this week, with Powell set to deliver congressional testimony on Wednesday and Thursday.

Some officials have already sounded hawkish, and with a point chart pointing to two more hikes, markets are pricing in a 70% chance of the Fed raising interest rates by a quarter point in July before they hold steady for the remainder of the year. .

“Federal Reserve Chair Powell presents House and Senate testimony with a focus on whether the July FOMC meeting was really ‘live’, and whether the Fed’s conspiracy of two more hikes is a true underlying case based on data or more,” Wray said. Atrell, Head of Foreign Exchange Strategy at National Australia Bank: “Ambition.”

The Bank of England also meets on Thursday when it is set to raise interest rates by a quarter point to a 15-year high of 4.75%. Markets are betting that the Bank of England’s interest rates will rise to close to 6% this year.

In currency markets, the dollar index was little changed against its major peers at 102.33 on Monday, after falling 1.2% in the previous week, the largest drop in five months.

The yen was undercut by the Bank of Japan, touching a seven-month low of 141.97 per dollar, while the hawkish European Central Bank, which raised interest rates by a quarter point last week, helped the euro stay near a five-week high of 1.093. dollar.

Oil prices fell more than 1% on Monday. US crude futures fell 1.5 percent to $70.74 a barrel, and Brent crude fell 1.4 percent to $75.52 a barrel.

Gold prices settled at $1957.39 an ounce.

Reporting by Stella Keough; Editing by Christopher Cushing and Tom Hogg

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