GLOBAL MARKET - SYDNEY. Asian shares started cautiously 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 where profits could be under pressure.
An upbeat U.S. June payrolls report already has the market wagering heavily on a hike of 75 basis points from the Federal Reserve this month, and sending bond yields higher.
Underlining the global nature of the inflation problem, central banks in Canada and New Zealand are expected to tighten further this week.
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.
"Consensus expects 2Q S&P 500 EPS growth of just +6% year/year," says Goldman Sachs analyst David J. Kostin. "While firms will likely clear this low bar, we expect cautious commentary will prompt cuts to forward estimates."
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If the economy does manage to dodge recession, Kostin sees EPS growth of 8% in 2022 and 6% in 2023, with the S&P 500 index rising to 4300. In a moderate recession, EPS could fall by 11%.
Early Monday, S&P 500 futures were down 0.2% and Nasdaq futures off 0.3%.
MSCI's broadest index of Asia-Pacific shares outside Japan hovered around flat. South Korea eased 0.3%, but Japan's Nikkei added 1.5%.
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A major hurdle will be Wednesday's U.S. consumer price report where markets see headline inflation accelerating further to 8.8%, but a slight slowdown in the core measure to 5.8%.
An early reading on consumer inflation expectations this week will also have the close attention of the Fed.
"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.
