SYDNEY : Caution gripped share markets on Monday as investors braced for a U.S. inflation report that could force another super-sized hike in interest rates and the start of an earnings season in which profits will be under pressure.
While Wall Street did eke out some gains last week, the market mood will be tested by earnings from JPMorgan and Morgan Stanley on Thursday, with Citigroup and Wells Fargo the day after. On Monday, S&P 500 futures were down 0.7 per cent and Nasdaq futures off 0.9 per cent. EUROSTOXX 50 futures fell 1.3 per cent and FTSE futures 1.0 per cent.
Japan's conservative coalition government was projected to have increased its majority in upper house elections on Sunday, two days after the assassination of former prime minister Shinzo Abe. "Unexpected weakness in these releases will be required to dislodge expectations for a 75bps July 27 Fed rate rise, which lifted from about 71bps to 74bps post the payrolls report," said Ray Attrill head of FX strategy at NAB.Likewise, Treasury yields climbed around 10 basis points on the jobs report and the 10-year stood at 3.09 per cent on Monday, up from a recent low of 2.746 per cent.
"With little economic relief on the horizon for Europe, and U.S. inflation data likely to mark a new high for the year and keep the Fed hiking aggressively, we think the risks remain skewed in favour of the greenback," said Jonas Goltermann, a senior markets economist at Capital Economics.
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