Wayne Cole

SYDNEY – Asian shares edged up cautiously on Monday, as U.S. stocks futures gained early gains. Investors were however wary about potential bearish surprises from a Chinese economic report due out later.

Due to the pandemic strains and restrictions on housing markets, annual growth in industrial output, retail sales and urban investment is expected to slow down in October.

CBA economists suggested that the People’s Bank of China might reduce bank reserve requirements (RRR), this week in support of activity.

According to them, a 50% reduction in the RRR would release CNY 1 Billion of liquidity.

The U.N. Climate Conference in Scotland was able to come to an agreement on greenhouse gas emissions. However, it did not alter the commitment to end all coal-fired power plants.

MSCI’s Asia-Pacific share index outside Japan, which is the broadest, rose 0.1% last week after soaring higher in late-last week.

The 0.7% gain was due to data that showed economic activity fell by more than anticipated in the third quarter. This only strengthened the need for fiscal stimulus.

Wall Street lost ground last week, breaking a streak of gains. However the major indexes were just a fraction off their all-time highs. The Nasdaq Futures rose 0.3% in the early trading on Monday.

U.S. retail sales will release their results on Tuesday. This is to assess the impact of consumer sentiment at its lowest level in ten years, which was reported as a result of people’s concerns about rising petrol prices.

Doubts remain about the ability of firms to price effectively in order to protect margins against rising prices.

BofA’s analysts found that 75% U.S.-based companies beat their earnings forecasts in the most recent reporting season. However, the BofA forecasts for the fourth period were not flat and broke more than a decade of rising expectations.

Treasuries stabilized a little after the negative survey, but yields were up by a significant 11 basis points during the week. This was because the market valued in an increased risk of an immediate tightening from the Federal Reserve.

Ethan Harris, BofA economist believes that the market hasn’t priced in enough because of the high inflation rate. This means that rates will need to increase more for neutral.

Harris warned that “if inflation persists at a high level and rises beyond the plan overshoot, Fed officials will have to be much more hawkish. The Fed can either agree with a market correction or intentionally induce one.”

A combination of higher U.S. yields combined with general risk-aversion has helped the dollar to enjoy its strongest week in three months. Comparable to a variety of currencies, dollar held steady at 95.120. This was just under its best week since July 2020.

The October top was preparing to challenge it at 114.69 yen.

The euro was vulnerable at $1.1442, after breaking significantly lower last week.

Ray Attrill of NAB’s FX Strategy, stated that “covid infection curves are moving in the wrong directions” and added that renewed restrictions in Austria (and the Netherlands) are also part of the problem.

Currency markets do not lose sight of the implications for both growth and ECB policies.

Christine Lagarde (CEB President) will address the European Parliament Monday afternoon.

Gold prices remained at $1.865 an ounce due to inflation worries, following its highest weekly gain since May.[GOL/]

This week was tougher for oil prices, due to a stronger dollar and speculation President Joe Biden might allow crude oil to be released from the U.S. Strategic Petroleum Reserve.[O/R]

The barrel had gained 21 cents on Monday to $82.38 per barrel and climbed 28 cents to $81.07.