Share Market: Markets Expect Fed to be Accommodative

SHARE MARKET – Asian stocks marched forward on Monday while bonds saw larger demand globally after fueled speculations that the US Federal Reserve will adapt a solidly dovish tone during its policy meeting this week.

Market participants and analysts speculate that Fed policymakers will decrease their interest rate forecasts, or “dot plots”, to show minimal or zero tightening this year. In addition, expectations have it that there will be more details on a plan to stop cutting the Fed’s holdings of nearly $3.8 trillion in bonds. The two-day meeting will be ending with a news conference on Wednesday.

In consequence, yields on three- and five-year Treasuries fall in line with the effective Fed funds rate. Meanwhile, futures indicate a stronger-than-expected probability of a rate cut by year-end.

“Long-term bond yields remain noticeably lower across a wide range of countries,” said a group chief economist at National Australia Bank. “Markets are pricing in little to no chance of a rate hike by the major central banks this year, outside of the Bank of England. The Fed is indicating that it will be patient and we don’t expect any rate hikes this year.”

For the figures, Japan’s Nikkei gained 0.59 percent, while the MSCI’s broadest Asia-Pacific shares ex-Japan was up 0.6 percent.

Shanghai blue chips rose 1.6 percent and spread-betters indicated a modest opening gain for the European bourses. S&P 500 e-mini futures were flat.

The S&P 500 boasted its best weekly gains since November last week, while the NASDAQ recorded its best week so far this year.

Brexit Saga Continues 

For the second month in a row, US manufacturing output in February fell and factory activity in New York State reached nearly a two-year low this month. This serves as further proof of a sharp slowdown in economic growth early during the first quarter.

The pound hovered at $1.3289 as markets anticipated some clarifications on where the Brexit saga was going towards. British Prime Minister Theresa May’s government is seeking to gain support in parliament for her Brexit deal.

If she aims to attend a summit with the bloc’s leaders on Thursday with something to propose to them in exchange for more time, May has only three days to convince the parliament to give approval for her proposed divorced deal.

“Most Brexit permutations look moderately GBP positive for the week but long-term challenges were underscored by the BCC forecasting a cut to business investment by the most in 10 years,” said a head of Asia FX strategy.

According to the British Chamber of Commerce’s (BCC) forecast, there would be a 1 percent drop in investment in 2019.

The dollar was at 111.53 against the yen, off from a top of 111.89 recorded last Friday. Meanwhile, against a basket of other currencies, the dollar traded at 96.498 after it dropped 0.7 percent last week.

The euro held at $1.1333, higher from a recent rock bottom of $1.1174, which it reached when the European Central Bank took a dovish tone of its own.