A man wearing a protective mask walks past an electronic board with graphs top of the Nikkei index outside a brokerage in Tokyo amid the coronaviruses disease COVID 19 outbreak.
SYDNEY Reuters- Asian shares fell on Monday ahead of a week of central bank meetings and U.S. inflation data, while the euro eked out a gain on relief the far right did not win in the first round of the French presidential elections.
French leader Emmanuel Macron and challenger Marine Le Pen qualified for what promises to be a tightly fought presidential election runoff on April 24.
A Le Pen victory would be a similar jolt to Britain's vote to leave the EU. The result was close enough to leave the euro just a tick firmer at $1.0888 after an initial pop up to $1.0950.
The mood in equity markets was cautious, with MSCI's broadest index of Asia-Pacific shares outside Japan easing 0.1%. Japan's Nikkei dropped by 0.6%, having lost 2.6% last week.
S&P 500 stock futures and Nasdaq futures fell by 0.2% in early trade. The earnings season kicks off this week with JP Morgan, Wells Fargo, Citi, Goldman Sachs and Morgan Stanley all due to report.
Wall Street fared well in the face of a selloff of bonds, which saw 10 year Treasury yields surge 31 basis points last week, to be last at 2.72%, while Wall Street has fared well. The US 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 U.S. economist Ethan Harris now expects half-point hikes at each of the next three meetings and a cycle peak around 3.25 -- 3.50%.
Harris said that if inflation is below 3%, our current call should be hawkish. If inflation gets above 3%, the Fed will need to hike until growth drops close to zero, risking a recession. The March U.S. consumer price report on Tuesday shows the importance of an upward projection of 1.2%, taking annual inflation to an eye-watering 8.5%.
The risk is for a hawkish slant to the statement, as the European Central Bank meeting takes place on Thursday and inflation will be front and centre.
Analysts at TD Securities believe that inflation has jumped well above where the ECB thought it would be just one month ago, with the announcement of an early end to QE in May and setting the groundwork, but not quite committing to a June hike. The central banks in Canada and New Zealand could raise rates by 50 basis points at their policy meetings this week, continuing the theme of tightening the theme. CA INT NZ INT The dollar index has gone above 100 for the first time since May 2020, and it was last trading at 99.785.
The Bank of Japan is dedicated to keeping its policy super-loose and bond yields near zero, as the main casualty has been the yen. The dollar was up at 124.37 yen after climbing by 1.5% last week to just below its recent peak of 125.10.
Thermal coal was the stand out winner in commodity markets last week, with a rise of almost 13% after the EU banned imports of Russian coal.
Gold had a weekly gain of 1.1% but has been hampered by the huge rise in bond yields and was last flat at $1,944 an ounce. After world consumers announced plans to release crude from strategic stocks and Chinese lock-ins continued, GOL Oil prices remained under pressure. Early Monday, Brent was down $1.51 at $101.27, while the U.S. crude lost $1.48 cents to $96.78.