By Wayne Cole
SYDNEY (Reuters) -Chinese shares led Asia higher on Monday as investors gave a cautious welcome to the likely resumption of U.S. interest rate cuts, while hoping AI-superstar Nvidia’s results this week will help justify the sector’s stratospheric valuations.
Federal Reserve Chair Jerome Powell’s dovish change of course has seen futures price in an 84% chance of a quarter-point rate cut in September, and at least 100 basis points of easing to 3.25-3.5% by the middle of next year.
The shift shoved Treasury yields and the dollar lower, flattering the outlook for corporate earnings, though it also implies policymakers now see more danger of a downturn in employment and the economy.
“The news reinforces our view that the Fed will ease in response to softening labor demand and that risk to our forecast for a material downshift in global growth this quarter is skewed to the upside,” said Bruce Kasman, global head of economic research at JPMorgan.
The market’s euphoria will also be tested by a reading on U.S. personal consumption prices on Friday that is expected to show core inflation creeping up to its highest since late 2023 at 2.9%.
“The report should reinforce the message that a rebound in service price inflation is combining with tariff-related pressures to push core inflation towards a 4% annualised rate,” warned Kasman.
Any upside surprise to inflation would also challenge the rally in longer-dated Treasuries, especially given a whopping $183 billion in new debt is being sold this week.
Yields on 10-year notes held steady at 4.268%, having dived 7 basis points on Friday.
The influential head of the New York Fed John Williams is due to speak later on Monday and markets will be keen to hear if he shares Powell’s outlook on policy.
For now, investors were content to follow Wall Street’s lead and Japan’s Nikkei rose 0.4%. South Korean stocks gained 1.1% and Australia’s index 0.2%.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.5%. Chinese blue chips extended their recent rousing run with a gain of 1.4%, taking the index to its highest since mid-2022.
The Chinese index has climbed almost 10% so far this month on a liquidity-fuelled rally even as domestic demand has remained subdued and company pricing power almost non-existent.
EYEING NVIDIA
Other markets were more muted, with EUROSTOXX 50 futures and DAX futures down 0.3%. S&P 500 futures and Nasdaq futures were both off 0.1% after climbing on Friday.
All eyes are on Nvidia’s results on Wednesday when it is forecast to boast a 48% rise in earnings per share on revenue of $45.9 billion for its second fiscal quarter.
Options imply the shares could swing almost 6% in either direction depending on the outcome, causing waves in the broader market given the company’s $4 trillion valuation.
Analysts will be keen to hear more on the outlook for shipments to China and details of the deal with President Donald Trump to pay the U.S. government 15% of the revenue from sales of some advanced chips in the Asian giant.
Trump on Friday announced the U.S. will also purchase a 9.9% stake in Intel for $8.9 billion, or $20.47 per share, which represents a discount of about $4 from Intel’s closing share price of $24.80.
In currency markets, the dollar had steadied for the moment at 147.36 yen after dropping 1% on Friday from a top of 148.77. The euro stood at $1.1703, having bounced from a trough of $1.1583 on Friday.
The European Central Bank is still expected to hold interest rates unchanged at its policy meeting in September, though
sources told Reuters that discussions about further cuts may well resume in the autumn if the economy weakens.
Commodity markets were encouraged by the drop in the dollar, with gold at $3,365 an ounce after jumping 1% late last week. [GOL/]
Oil prices were further supported by the lack of progress on talks between Russia and Ukraine, which keeps sanctions on Russian supplies. [O/R]
Brent was a fraction firmer at $67.77 a barrel, while U.S. crude added 0.1% to $63.78 per barrel.
(Reporting by Wayne Cole; Editing by Shri Navaratnam)
