At the beginning of the week, Asian stock markets showed restraint, and the U.S. dollar saw an uptick, as market participants evaluated the timing of the anticipated U.S. Federal Reserve interest rate reductions following a robust employment report.
Following a decrease in Middle Eastern tensions due to Israel's military de-escalation in southern Gaza, oil prices dropped almost 2%. Concurrently, gold prices dipped by 1% after reaching a new high last Friday, as U.S. Treasury yields continued to soar.
The MSCI index, tracking Asia-Pacific shares excluding Japan, modestly climbed by 0.26%, while Tokyo's Nikkei index experienced a 1% increase. After returning from an extended holiday, China's main stock indices showed mixed results, with the blue-chip index dropping by 0.5%, whereas Hong Kong's Hang Seng Index advanced by 0.33%.
On Wall Street, major indices ended the week on a high note, buoyed by March's employment data that far exceeded expectations, indicating a strong economic finish to the first quarter.
According to ANZ strategists, the robust economic indicators present a paradox for the markets, balancing the positive aspect of growth far from recession against the potential for prolonged high interest rates by the Fed.
Current market sentiment, as reflected by the CME FedWatch tool, suggests a 49.1% likelihood of a Fed rate cut in June, with predictions now leaning towards July for the commencement of the rate reduction cycle. Expectations for rate cuts within the year have adjusted to 62 basis points, slightly below the Fed's 75 basis points forecast.
This week, the focus shifts to the U.S. consumer price index (CPI) report for March, anticipated to reveal a slight deceleration in core inflation to 3.7% from the previous month's 3.8%.
Kit Juckes, a strategist at Societe Generale, noted that the market's expectations are gradually favoring a July rate cut over June, largely due to the recent strong economic data.
As expectations around U.S. interest rate policies evolve, Treasury yields have surged, with the two-year yield reaching its highest point in nearly four months, and the 10-year yield also on the rise.
The dollar gained strength against its counterparts, with the euro and sterling witnessing slight declines. The Japanese yen also weakened, with potential for further discussions on intervention by Japanese authorities if the U.S. CPI report significantly exceeds expectations.
Looking ahead, the European Central Bank's upcoming meeting is anticipated to maintain steady interest rates, with no cuts expected in April but a possibility of adjustments in June and the latter part of the year.
In the commodities market, spot gold and crude oil prices experienced declines, while diplomatic efforts between Israel and Hamas towards a ceasefire ahead of the Eid holidays helped ease Middle East tensions, contributing to a reduction in oil prices after a previous surge due to supply disruption concerns.
