By Wayne Cole
SYDNEY (Reuters) – Asian shares were weak on Monday ahead of U.S. equity data as investors hope inflation will slow again and markets braced for possible Japanese intervention as the dollar tests the 160 yen barrier.
Geopolitical issues also loom large, with the first US presidential debate scheduled for Thursday and the first round of voting in the French elections over the weekend.
MSCI’s broad index of Asia Pacific stocks ex-Japan fell 0.1% after hitting a two-year high last week. South Korean stocks fell 0.5%.
Both Nasdaq futures rose about 0.1%.Boeing shares could come under downward pressure after Reuters reported that U.S. prosecutors are recommending criminal charges be filed against the aircraft maker.
Despite shaky domestic data, the yen’s continued weakness put pressure on the Bank of Japan to tighten monetary policy, resulting in a 0.1% decline.
Minutes from the central bank’s last policy meeting, released on Monday, showed there was much discussion about tapering bond purchases and raising interest rates.
Japan’s top foreign exchange official was quick to express dissatisfaction with the yen’s fall to 159.87 yen to the dollar on Friday.
The dollar was trading slightly weaker at 159.73 and eyeing the 160.17 level at which Japan is believed to have spent about $60 billion buying yen in late April and early May.
The Australian dollar and New Zealand dollar both hit their highest levels against the yen in 17 years, thanks in part to demand for carry trades, in which investors borrow yen at low interest rates to buy higher-yielding currencies.
The euro was also testing recent highs of 170.87 yen, despite being stuck at $1.0688 due to weak purchasing managers’ index (PMI).
“Weakening euro area PMI data for June raises concerns that signs of a recovery may be short-lived,” JPMorgan analysts wrote in a note.
“The sharp decline is notable against the backdrop of the French elections, which companies explicitly cited as the reason for the drop.”
France’s far-right Rally National (RN) party and its allies came out on top in the first round of the country’s general election with 35.5% of the vote, according to a poll released on Sunday.
In contrast, a survey of U.S. manufacturers showed that activity reached a 26-month high in June, although price pressures remain significantly weaker.
The latter change spurred interest in the personal consumption expenditures (PCE) price index, due to be released on Friday. Annual growth in the core index heavily favored by the Federal Reserve is expected to have slowed to 2.6% in May, the slowest rate in more than three years.
These results are likely to strengthen market expectations that the Fed will cut interest rates as early as September, with futures markets currently valuing the probability of a cut at 65%.
This week’s calendar features at least five Fed speakers, including San Francisco Fed President Mary Daly, Fed Governor Lisa Cook and Governor Michelle Bowman.
In commodity markets, gold felt the weight of a stronger dollar, dropping to $2,317 per ounce. [GOL/]
Oil prices also fell slightly after rising about 3% last week. [O/R]
It fell 40 cents to $84.84 a barrel and 39 cents to $80.34 a barrel.
