Asia Pacific shares are trading mostly lower on Monday with Australian stocks positing the only gains. Volume and volatility are below average as investors prepare for interest rate and monetary policy decisions from the Bank of Japan (BOJ) on Tuesday and the U.S. Federal Reserve (FED) on Wednesday. Both are expected to be dovish which should underpin prices. The degree of dovishness is still a mystery, however.
Investors will be looking for answers to the questions, “Will the BOJ pass on a rate cut in July, but strongly suggest more stimulus in September?” Will the Fed suggest another rate cut in September, or pass on September and cut in December?” Or does it have three consecutive rate cuts in mind?
At 06:47 GMT, Japan’s Nikkei 225 Index is trading 21616.80, down 41.35 or -0.19%. Hong Kong’s Hang Seng Index is 27998.38, down 399.36 or -1.41% and South Korea’s KOSPI Index is at 2030.86, down 35.40 or -1.71.
China’s Shanghai Index is at 2940.96, down 3.58 or -0.12% and Australia’s S&P/ASX 200 is at 6825.80, up 32.40 or +0.48%.
Tensions Remain High in Hong Kong
Hong Kong’s Hang Seng Index is taking a huge hit on Monday as tensions remain high in the city following another clash between protestors and the police over the weekend.
According to CNBC, “On Sunday, a peaceful gathering in a park in the city’s central business district rapidly morphed into a march, as tens of thousands of black-clad protesters set off in several directions, clogging up major thoroughfares.”
“Thousands of people headed east, towards the shopping district of Causeway Bay, while another large contingent headed west, towards the Chinese government’s representative office, known as the Central Government Liaison Office.”
“There, hundreds of riot police blocked activists from advancing towards the building, which had been heavily fortified with barricades after it was surrounded and defaced a week earlier.”
According to Ben Bland, director of the Southeast Asia Project at Sydney-based think tank the Lowy Institute, there are three possible scenarios how the demonstrations could pan out from here.
- Authorities wait out the protesters.
- Beijing intervenes directly, imposes martial law.
- Authorities make meaningful concessions.
The situation is critical because Hong Kong is a major international business center.
US-China Trade Talks Resume
US-China trade talks are scheduled to resume this week, with a trade delegation from Washington set to fly to China on Monday for negotiations with Beijing officials. The news is probably underpinning global stock prices, but since expectations for a major breakthrough are low, investors are not likely to chase the market higher at current price levels, and ahead of the central bank announcements.
Australian Shares Near Record High
Australia’s S&P/ASX 200 closed 3 points under a record as investors continued to bet on lower interest rates. The financial and healthcare sectors added the most points, while information technology and communications had the biggest gains, rising 1.8 percent and 1.5 percent respectively. The real estate sector underperformed with a decline of 0.7 percent.
Last week, Reserve Bank of Australia (RBA) Governor Philip Lowe may have greenlit the latest surge in prices after he said the board is prepared to cut interest rates further if the economy does not grow fast enough. He further added that even if it does not cut rates, “it is reasonable to expect an extended period of low interest rates”.
Expectations of low interest rates is one reason why the S&P/ASX 200 is within striking distance of taking out its 2007 high.
This article was originally posted on FX Empire
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