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A Reuters poll showed that 65% of economists surveyed expect the Bank of Japan to raise its key interest rate to 1.00% in June.A Reuters poll shows that the Bank of Japan is expected to raise interest rates to 1.25% in the fourth quarter and to 1.50% in the third quarter of 2027 (unchanged from the April poll results).The Governor of the Central Bank of Malaysia stated that the country will inevitably be directly and indirectly affected by the Middle East conflict. The Malaysian economy is expected to remain resilient in 2026, with growth projected at 4%-5%. Despite external headwinds, technological expansion will support export growth. Strong domestic demand will provide strong support against external headwinds.Central Bank of Malaysia: Indicators show that overall price conditions remained relatively under control as of early May. Overall inflation is expected to rise slightly in 2026. The ringgit remains resilient despite ongoing Middle East conflicts.On May 15th, the Bank of Japan stated that Japan may face another round of across-the-board price increases around the summer as businesses ranging from food manufacturers to hot spring resorts consider passing on soaring energy costs caused by the Middle East conflict to consumers. In a report based on a survey of regional businesses conducted from January to April, the Bank of Japan noted that many service sector companies are gradually passing on rising raw material and labor costs to consumers, abandoning their long-standing practice of maintaining low prices. The report stated that rising energy costs due to the Middle East conflict have also prompted companies to accelerate price increases in their fiscal year business plans starting in April. Some companies, including those in the food, restaurant, and hot spring resort industries, have decided to raise prices at a faster pace. The report stated, "Other companies indicated they will soon decide whether to raise prices. As for the specific timing, some companies indicated they will decide around the summer or later." This report highlights the Bank of Japans growing concern about accumulating inflationary pressures in the economy, which could provide further justification for a near-term interest rate hike.

Asian stocks follow Wall Street higher ahead of Fed meeting

LEO

Oct 25, 2021 14:07

By Kevin Buckland and Kane Wu

TOKYO (Reuters) - Asian stocks rose on Tuesday, tracking Wall Street's advance to record highs, as investors anticipated the U.S. Federal Reserve and other central banks meeting this week will keep policies accommodative to help drive a post-pandemic global economic recovery.

European shares looked set to extend the global rally, with pan-region Euro Stoxx 50 futures up 0.2% and FTSE futures 0.5% higher in early deals. On Monday, the STOXX 600 index touched its highest level in more than a year before ending flat. E-mini futures for the S&P 500 edged up 0.04%.

An index of Asia-Pacific share markets excluding Japan strengthened 0.69%, led by a 1.2% jump in Australia's benchmark S&P/ASX 200 index.

Japan's Nikkei 225 gained 0.5% to just below the closely watched 30,000 mark, while the broader Topix added 0.65%.

China's blue chip CSI 300 index climbed 0.55%, and Hong Kong's Hang Seng gained 0.46%.

"The rally in stocks has to do with expectations that as we hear from central banks this week, they'll be reiterating a message they've already made clear, which is they are unconcerned about the inflation outlook," said Michael McCarthy, chief markets strategist at CMC Markets in Sydney.

"Whether or not that will last is a key question. We’ve seen sentiment reverse sharply several times over the past two or three weeks, particularly in bond markets. But for right now, the sun is shining and equity gains reflect that."

On Monday, the S&P 500 and Dow Jones Industrial Average both soared on gains in travel stocks as mass vaccinations in the United States and congressional approval of a $1.9 trillion aid bill fueled investor optimism.

Longer-term U.S. Treasury yields slipped further on Tuesday, as the market looked ahead to government debt auctions and the Fed's two-day policy meeting, which will conclude on Wednesday.

The benchmark 10-year yield, which reached a more than one-year high of 1.642% last week, was back at 1.125%.

The earlier surge in yields stemmed from investors speculating that rising inflation expectations could prompt the Federal Open Market Committee to signal it will start raising rates sooner than expected.

Fed policymakers are expected to forecast that the U.S. economy will grow in 2021 by the fastest rate in decades, as it recovers from a coronavirus-stricken 2020.

The Bank of England also meets this week on Thursday, while the Bank of Japan wraps up a two-day gathering on Friday.

On Wall Street, the Dow Jones Industrial Average rose 174.82 points, or 0.53%, to 32,953.46, the S&P 500 gained 25.6 points, or 0.65%, to 3,968.94 and the Nasdaq Composite remained unchanged to 0.00.

Airline shares rose as the companies pointed to concrete signs of an industry recovery as vaccine rollouts help spur leisure bookings.

The outlook for post-pandemic recoveries continued to diverge between the U.S. and Europe.

President Joe Biden's order to make vaccination available to all adults by May 1 contrasted with stuttering rollouts in Germany, France and elsewhere, where use of the AstraZeneca (NASDAQ:AZN) vaccine has been suspended due to concerns over possible serious side effects.

However, Kyle Rodda, an analyst at IG Markets, said the prospect of a slower economic recovery in Europe didn't appear to be a major handicap for investors.

"It doesn't seem to be the view that this is a real risk," he said. "Investors are wary, but not worried."

In currencies, the U.S. dollar held small gains from overnight, with caution evident ahead of the central bank meetings.

The greenback was largely flat at 109.19 yen, after rising as high as 109.365 on Monday for the first time since June.

The euro was little changed at $1.1930, languishing for an eighth session below the closely watched $1.20 level.

Bitcoin continued its slide from a record high of $61,781.83 reached on Saturday, last trading 2.42% weaker on the day at around $54,304.


U.S. West Texas Intermediate crude for April changed hands at $64.81 a barrel, down 58 cents. Brent crude futures for May stood at $68.31 a barrel, losing 57 cents.


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