Asian markets edged up slightly on Tuesday, while the dollar weakened for the third consecutive day as expectations grew that the European Central Bank would soon cut interest rates, boosting risk appetite.
Gains were limited as key inflation data is expected this week.
European markets are set to open slightly higher, with EUROSTOXX 50 futures up 0.2%. Previously, several European Central Bank officials indicated a possibility of rate cuts due to slowing inflation, which lifted markets overnight.
As discussions shift to subsequent actions, markets have fully priced in two rate cuts by October this year. This has also lifted Wall Street futures, with U.S. markets reopening after a public holiday.
S&P 500 futures rose 0.1%, while Nasdaq futures climbed 0.2%.
The MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2%, following a 0.9% increase on Monday. Taiwan’s stocks surged 0.5% to a new high, while Hong Kong’s Hang Seng Index pared earlier gains, closing up 0.1%.
Japan’s Nikkei index fell 0.2%, giving back the previous day’s 0.7% rise.
IG analyst Tony Sycamore stated, “We are entering the summer season in the Northern Hemisphere, traditionally a period when markets tend to consolidate.”
Sycamore believes that after a recent rally, the Hang Seng Index has room for further gains, as data might support further improvement in China’s economy. China will release its May survey of manufacturing and service activities on Friday.
“I like to re-enter this trade on pullbacks because I believe there is further upside, while for the Nikkei index, I think there are now doubts in the market.”
He added that the Nikkei index’s failure to return to its historic highs from March has led market participants to withdraw from this benchmark and instead invest in the Chinese market.
The week's key risk events will be unveiled on Friday when the U.S. releases its core personal consumption expenditures (PCE) data—the Federal Reserve's preferred inflation gauge—alongside the Eurozone’s inflation data, setting the trading tone.
In the forex market, the dollar weakened for the third day in a row, falling 0.1% against major currencies, as traders await the release of the PCE data.
The median forecast for April is a 0.3% increase from the previous month, with a year-over-year rise of 2.8%, with downside risks.
The yen held steady at 156.78 per dollar, slightly stronger than the key 157 level. However, the yen continued to weaken against a range of high-yielding currencies, with the New Zealand dollar reaching a 17-year high of 96.56 against the yen on Tuesday.
Driven by strong carry trade demand, the New Zealand dollar hit a 2.5-month high of 0.6155 against the U.S. dollar.
The cash Treasury market resumed trading after the holiday, with little change following last week's setbacks.
