Investors were relieved by encouraging Chinese economic data on the previous day, though broad pressure across global business and investment from Sino-U.S. trade frictions and slowing world growth reinforced expectations of policy easing by major central banks.
Asian shares inched up on Tuesday as traders awaited U.S. retail sales data and more corporate earnings to gauge the health of the world’s biggest economy, with markets remaining focused on a likely U.S. rate cut by the end of the month.
Investors were relieved by encouraging Chinese economic data on the previous day, though broad pressure across global business and investment from Sino-U.S. trade frictions and slowing world growth reinforced expectations of policy easing by major central banks. U.S. data on Tuesday is expected to show that retail sales gained 0.1% in June, according to the median estimate of economists polled by Reuters. But a decline in net interest margin reported by Citigroup in its mixed quarterly report underlined risks for financial firms in a lower interest rate environment. That decline partly overshadowed better-than-expected profit numbers, triggering a fall in shares of other banks on concerns that it would presage lower profits across the industry.
“Clearly the biggest risk to the most recent rally is the earnings season,” said Ryan Felsman, senior economist at CommSec in Sydney. Signs of trade tensions weighing on corporate profits and the fading impact of tax cuts would underscore the U.S. Federal Reserve’s concerns over slowing business investment, he said.
“That feeds into the narrative of concerns around the global economy, the slowing in the U.S. economy, but also the need for potentially more aggressive rate cuts from the Fed to support the U.S. economy going forward,” Felsman said.
Markets are fully priced for a 25-basis point cut by the Fed at its meeting at the end of this month. Early in the Asian trading day, MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.04%. That followed small gains on Wall Street overnight, with the Dow Jones Industrial Average rising 0.1%, the S&P 500 gaining 0.02% and the Nasdaq Composite adding 0.17%. U.S. S&P 500 e-mini stock futures pointed up, rising 0.07% in early Asian trade. Australian shares were up 0.1% and Japan’s Nikkei stock index dipped 0.36%.
Ahead of the release of U.S. retail sales figures, signs of an improving economic situation in the United States have led to a steepening of the U.S. yield curve, led by higher longer-dated yields. On Tuesday, the yield on benchmark 10-year Treasury notes turned down slightly to 2.087% compared with its U.S. close of 2.092% on Monday.
The two-year yield, closely watched as a gauge of traders’ expectations for Fed fund rates, extended its falls to 1.829% compared with a U.S. close of 1.833%. In the currency market, the dollar was up 0.12% against the yen at 108.03, and the euro was flat, buying $1.1255. The dollar index, which tracks the greenback against a basket of six major rivals, was largely unchanged at 96.957.
Oil prices, which had risen amid concerns over the impact of a tropical storm on U.S. Gulf Coast production, eased on signs any impact would be short lived, and as slowing Chinese growth drove a reassessment of the outlook for crude demand. U.S. West Texas Intermediate (WTI) crude, fell 0.18% to $59.36 a barrel and Brent crude, the global benchmark, dipped to $66.36 per barrel. Gold was slightly higher, with spot gold trading at $1,414.32 per ounce.