The Morgan Stanley headquarters in New York, US. (Photo: Angus Mordant/Bloomberg) 
The Topix index of Japanese equities faced its biggest one-day drop since October, weighed down by the tech sector which lost almost 3%. Chip stocks within the benchmark slumped around 4% in a move that echoed pressure on AI-related stocks seen on Friday in the US, when Nvidia Corp. slipped 5.6%.
Equities in Australia and South Korea also declined, sending a gauge of regional shares down after three days of gains. US futures were steady after falls on Wall Street at the end of last week, where both the S&P 500 and the Nasdaq 100 slipped.
In Japan, economic growth expanded in the fourth quarter, supporting expectations that the Bank of Japan will raise interest rates for the first time since 2007 as soon as this month. Declines for Japanese shares partly reflected the stronger yen, which typically acts as a headwind for the country’s equities.
The currency was firmer against the greenback in early trading on Monday, extending its 2% rally last week against the US currency — its best weekly gain since July. Japanese bond yields gained on a report stating that the BOJ is considering scrapping its yield curve control programme.
“Perhaps, Japan is finally coming out of this deflationary vortex and that could have profound implications on Japanese assets,” said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi Asset Management, explaining that this will be supportive for the yen through repatriation flows, mainly going into stocks.
Chinese equities ran against the gloom to trade higher. The advance was helped along by the first rise in consumer prices since August. The 0.7% increase in February CPI exceeded consensus estimates and is welcome news for investors worried about deflation in the world’s second largest economy.
The gains come even despite a lacklustre set of announcements from the National People’s Congress that many China-watchers see as a lost opportunity to support confidence.
“We haven’t seen anything done about the social safety net, so households don’t feel they have to save as much as they are,” Charlene Chu, China macro financial analyst for Autonomous Research, said on Bloomberg Television. Such measures would “help address some of these consumption issues,” that are weighing on confidence, she said.
Soft landing
Tuesday’s US consumer price index figures will dominate the economic data reports this week. The core prices gauge is seen rising 0.3% in February from a month earlier, and 3.7% on a year-over-year basis — which would be the smallest annual rise since April 2021.
Further moderation in US prices would support the disinflation narrative that broadly remains intact, despite a pullback in the number of Federal Reserve rate cuts expected this year. Swaps pricing shows three cuts are anticipated in 2024, down from six at the start of the year.
Last week’s US jobs data did little to change that outlook. The jobless rate touched a two-year high, even as the number of new jobs added exceeded estimates. The mixed signal points to a slowly cooling labour market that, for now, supports expectations for a soft landing in the US economy.
The jobs report “didn’t necessarily amount to an ‘all-clear’ signal for the Fed, but there also didn’t appear to be anything in it that would derail its plan to cut rates,” said Chris Larkin at E*Trade from Morgan Stanley.
Yields in Australia were largely flat on Monday, reflecting the steady trading in Treasuries in Asia. An index of the dollar was weaker after falling 1% last week — the worst weekly showing since December.
In commodities, oil held a loss on Monday ahead of reports from OPEC and the IEA this week that may provide clues on the demand outlook. Gold edged higher, extending Friday’s almost 1% gain. Bitcoin fell below $68,000.