Asia shares near month high ahead of central bank meetings

Asian shares started tentatively on Monday as investors braced for central bank meetings from Europe, Japan and the United States this week, along with U.S. inflation data that will likely influence the Federal Reserve's monetary policy path.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.17% to 519.96, having touched a more than one-month peak of 521.94 earlier in the session. The index is up 4% for the month. Japan's Nikkei rose 0.7%, while E-mini futures for the S&P 500 rose 0.15%. China stocks eased 0.01%, while Hong Kong's Hang Seng Index opened up 0.3%. China's sputtering post-COVID-19 economic recovery has weighed on stocks, with investors pinning their hopes on more policy stimulus as weak manufacturing and exports hurt the broader outlook this year.

Last week, the Reserve Bank of Australia and Bank of Canada stunned markets by increasing interest rates to tame stubborn and sticky inflation, stoking worries that the Fed might follow suit and take a hawkish stance in its June meeting. Citi strategists said the Fed could be faced with the lesson that other central banks like the Bank of Canada have learned – further tightening is still needed to bring inflation to 2%.

Markets are pricing for a 71% probability the U.S. central bank will stand pat when it meets on June 13-14, according to CME FedWatch tool. "It's a close call between a 25 basis point hike or a 'skip' ... and will come down to CPI on Tuesday," Citi said in a note.

Citi expects a 25 basis point hike from the Fed. "The most straightforward action to take when acknowledging rates should be higher is to raise rates." While doubts persist among investors which path the Fed will take this week, they are more certain the European Central Bank, which meets on Thursday, will raise rates and remain hawkish.

"We expect (ECB President) Lagarde to retain a hawkish stance on inflation arguing that more needs to be done on the inflation front," said Mohit Kumar, economist for Europe at Jefferies. "It is unlikely that Lagarde will give any hint that they are ready to pause after July, which is what the market is currently pricing," said Kumar, who expects the ECB to hike interest rates by 25 basis points.

In the currency market, the dollar index, which measures the U.S. currency versus six major rivals, rose 0.048%, with the euro down 0.04% at $1.0743. Sterling was fetching $1.2575, up 0.05% on the day. The yen eased 0.01% to 139.39 per dollar ahead of the Bank of Japan's (BOJ) policy meeting on Friday.

The BOJ is expected to maintain ultra-loose monetary policy this week and its forecast for a moderate economic recovery, as robust corporate and household spending cushion the blow from slowing overseas demand, sources told Reuters. Elsewhere, the Turkish lira slid to another all-time low of 23.77 per dollar.

Last week, the Reserve Bank of Australia and Bank of Canada stunned markets by increasing interest rates to tame stubborn and sticky inflation, stoking worries that the Fed might follow suit and take a hawkish stance in its June meeting. Citi strategists said the Fed could be faced with the lesson that other central banks like the Bank of Canada have learned – further tightening is still needed to bring inflation to 2%.

Markets are pricing for a 71% probability the U.S. central bank will stand pat when it meets on June 13-14, according to CME FedWatch tool. "It's a close call between a 25 basis point hike or a 'skip' ... and will come down to CPI on Tuesday," Citi said in a note.

Citi expects a 25 basis point hike from the Fed. "The most straightforward action to take when acknowledging rates should be higher is to raise rates." While doubts persist among investors which path the Fed will take this week, they are more certain the European Central Bank, which meets on Thursday, will raise rates and remain hawkish.

"We expect (ECB President) Lagarde to retain a hawkish stance on inflation arguing that more needs to be done on the inflation front," said Mohit Kumar, economist for Europe at Jefferies. "It is unlikely that Lagarde will give any hint that they are ready to pause after July, which is what the market is currently pricing," said Kumar, who expects the ECB to hike interest rates by 25 basis points.

In the currency market, the dollar index, which measures the U.S. currency versus six major rivals, rose 0.048%, with the euro down 0.04% at $1.0743. Sterling was fetching $1.2575, up 0.05% on the day. The yen eased 0.01% to 139.39 per dollar ahead of the Bank of Japan's (BOJ) policy meeting on Friday.

The BOJ is expected to maintain ultra-loose monetary policy this week and its forecast for a moderate economic recovery, as robust corporate and household spending cushion the blow from slowing overseas demand, sources told Reuters. Elsewhere, the Turkish lira slid to another all-time low of 23.77 per dollar.

U.S. crude eased 0.34% to $69.93 per barrel and Brent was at $74.49, down 0.4% on the day. Both benchmarks notched their second straight weekly decline last week as disappointing China economic data raised concerns about demand growth in the world's largest crude importer. Spot gold dropped 0.1% to $1,958.69 an ounce. U.S. gold futures fell 0.15% to $1,959.30 an ounce.