Asia: Shares slip ahead of ECB meeting, US inflation test

[SYDNEY] Asian shares slipped on Monday (Apr 11) ahead of a week packed with central bank meetings and US inflation data, while the euro eked out a gain on relief the far right did not win the first round of the French presidential elections.

French leader Emmanuel Macron and far right challenger Marine Le Pen qualified on Sunday for what promises to be a tightly fought presidential election runoff on Apr 24.

A Le Pen victory could send shockwaves through France and Europe in ways similar to Britain's vote in 2016 to leave the European Union (EU). The first round result was close enough to leave the euro just a tick firmer at US$1.0888, after an initial pop up to US$1.0950.

The mood in equity markets was cautious, with MSCI's broadest index of Asia-Pacific shares outside Japan easing 1 per cent.

Japan's Nikkei dropped 0.6 per cent, having shed 2.6 per cent last week, while Chinese blue chips lost 1.8 per cent.

S&P 500 stock futures eased 0.4 per cent and Nasdaq futures 0.6 per cent. Eurostoxx 50 futures lost 0.4 per cent, and FTSE futures 0.3 per cent.

Earnings season kicks off this week with JP Morgan, Wells Fargo, Citi, Goldman Sachs and Morgan Stanley all due to report.

Despite the early losses, Wall Street has fared surprisingly well in the face of a vicious selloff in bonds which saw 10-year Treasury yields surge 31 basis points last week to be last at 2.72 per cent.

Markets have raced to price in the risk of ever-larger rate hikes from the Federal Reserve with futures implying rises of 50 basis points at both the May and June meetings.

BofA's US economist Ethan Harris now expects half-point hikes at each of the next 3 meetings and a cycle peak around 3.25-3.50 per cent.

"If inflation looks like it is heading below 3 per cent, then our current call should be hawkish enough," Harris said in a note. "Conversely, if inflation gets stuck above 3 per cent then the Fed will need to hike until growth drops close to zero, risking a recession."

All of which underlines the importance of the March US consumer price report on Tuesday where the median forecast is for a stratospheric rise of 1.2 per cent, taking annual inflation to an eye-watering 8.5 per cent.

China's inflation figures surprised on the high side on Monday and while relatively modest at 1.5 per cent year-on-year in March, still dented hopes for aggressive policy easing from Beijing.

Inflation will also be front and centre for the European Central Bank (ECB) meeting on Thursday where the risk is for a hawkish slant to the statement.

"Inflation has jumped well above where the ECB thought it would be just one month ago," noted analysts at TD Securities. "We expect a dramatic shift from the ECB, with the announcement of an early end to QE in May and setting the groundwork, but not quite committing to, a June hike."

Continuing the tightening theme, central banks in Canada and New Zealand could well raise rates by 50 basis points at their policy meetings this week.

The outsized rise in Treasury yields has seen the dollar index top 100 for the first time since May 2020, and it was last trading at 99.858.

The main casualty has been the yen as the Bank of Japan remains dedicated to keeping its policy super-loose and bond yields near zero. The dollar was up at 124.81 yen, having gained 1.5 per cent last week to just below its recent peak of 125.10.

In commodity markets, thermal coal was the stand out winner last week with a rise of almost 13 per cent after the EU banned imports of Russian coal.

Gold managed a weekly gain of 1.1 per cent but has been undermined by the huge rise in bond yields and was last flat at US$1,944 an ounce.

Oil prices remained under pressure after world consumers announced plans to release crude from strategic stocks and as Chinese lockdowns continued.

Early Monday, Brent was down US$2.05 at US$100.73, while US crude lost US$2.10 to US$96.16. REUTERS