Asian stocks pause rally, eyeing China stimulus, Powell testimony

Asian shares started cautiously on Monday (19 June) after their best weekly run in five months, as investors looked ahead to China's rate decision and US Federal Reserve Chair Jerome Powell's testimonies for clues on the path ahead.

Both S&P 500 futures ESc1 and Nasdaq futures NQc1 were mostly flat after Wall Street's bullish run met resistance on Friday. Cash US Treasuries were untraded due to the Juneteenth holiday, while futures TYc1 were largely steady.

In Asia, Japan's Nikkei .N225 slipped 0.4%, having clinched a three-decade top on Friday, buoyed by the Bank of Japan's (BOJ) leaving its ultra-easy policy setting unchanged, which sent the yen to a 7-month low against the US dollar.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.6%, after hitting a four-month high on Friday and finishing up 3% for the week, the best since January.

China's blue chips .CSI300 slipped 0.5% while Hong Kong's Hang Seng index .HSI eased 0.6%.

In China, hopes for more forceful stimulus are growing after the cabinet meeting on Friday to discuss measures to spur economic growth, but concerns remain about whether they would be enough to revive a faltering economy.

The People's Bank of China is widely expected to cut its benchmark loan prime interest rates on Tuesday, following a similar reduction in medium-term policy loans last week.

Morgan Stanley expects an imminent stimulus package, including the loosening of property buying restrictions in top-tier cities, more infrastructure support and targeted consumption subsidies.

"Given that 2Q GDP growth is tracking at 0%, a strong sequential growth re-acceleration will be needed for full-year GDP growth to reach the government target of "around 5%"," said chief China economist Robin Xing.

Several major banks last week cut their growth forecasts for China after the recent disappointing data.

US Secretary of State Antony Blinken will wrap up his rare visit to China on Monday, with investors waiting to see if he would meet China's President Xi Jinping, which would likely be read as a positive sign in the otherwise frothy relations between the world's two biggest economies.

POWELL TAKES STAGE

After a week in which the stock market cheered the Fed's decision to skip a rate hike in June, investors are also looking to a number of Fed speakers this week, with Powell set to deliver congressional testimonies on Wednesday and Thursday.

Some officials have already sounded hawkish and with the dot plot indicating two more hikes, markets are pricing in a 70% probability of the Fed hiking rates by a quarter point in July before holding steady for the remainder of the year.

"Fed Chair Powell gives House and Senate testimony with focus on whether the July FOMC (Federal Open Market Committee) meeting is truly 'live', and if the Fed dot plot of two more hikes is a true base case depending on the data or more 'aspirational'," said Ray Attrill, head of foreign exchange strategy at National Australia Bank.

The Bank of England also meets on Thursday when it is set to raise interest rates by a quarter point to a 15-year high of 4.75%. Markets are betting on the British central bank's rates rising to nearly 6% this year.

The dollar index =USD was little changed against major peers at 102.34 early on Monday, after falling 1.2% the previous week, the most in five months.

The yen was undermined by a dovish BOJ JPY=EBS, touching a seven-month low of 141.90 per dollar, while the hawkish European Central Bank, which hiked rates by a quarter point last week, helped the euro EUR=EBS hold near a five-week top at $1.094.

Oil prices tumbled more than 1% on Monday. U.S. crude CLc1 futures fell 1.0% to 71.03 per barrel, and Brent crude LCOc1 was down 1.3% at $75.63 per barrel. O/R

Gold prices were 0.1% lower at $1,955.77 per ounce.