Asian stocks started the week cautiously as investors awaited a critical read on U.S. inflation this week for monetary policy advice, while Bitcoin took a beating after China cracked down on cryptocurrency mining and trade.
In lethargic trade, MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) scarcely changed. Japan’s Nikkei (.N225) rose 0.1 percent, while South Korea’s (.KS11) remained unchanged.
Nasdaq futures were down 0.2 percent, while S&P 500 futures were up a smidgeon.
After surveys of global service industries indicated phenomenal growth on Friday, all eyes will be on personal consumption and inflation numbers in the United States this week.
A strong estimate for core inflation would raise red flags and reignite discussion of a US Federal Reserve rate cut sooner rather than later.
This week’s calendar features a slew of Fed speakers, including Lael Brainard, the important Fed Board Governor, and investors will be watching to see if they keep to the script on policy patience.
According to BofA’s monthly Fund Manager survey, a record high 69 percent of respondents forecast global economic growth and inflation to be above trend.
As a result, managers flocked to commodities and late-cyclicals, where overweight positions were near 15-year highs, with Bitcoin being the most crowded play.
“With such strong views on growth and inflation, the risk for investors is that growth slows and inflation is only temporary,” according to a note by BofA analysts.
“Also, Tech, which was earlier considered as overcrowded, is now back to an underweight position and would likely profit if inflation fears faded.”
The congested Bitcoin market made it vulnerable to a sell-off as investors flocked to the exits in droves, sending the cryptocurrency down 50% from its all-time high. The cryptocurrency lost 13% on Sunday alone, and was last trading at $34,601, down 8%.
China’s crackdown on mining and trading of the world’s largest cryptocurrency, as part of ongoing measures to avert speculative and financial risks, harmed it in part.
In comparison, the main currencies were quiet, with the euro staying at $1.2179 after failing to break through chart resistance around $1.2244 last week.
The dollar was stuck at 108.94 against the yen, stuck between support at 108.56 and resistance at 109.33. The dollar had stabilized at 90.073 against a basket of currencies after falling to its lowest level since January at 89.646 on Friday.
The dollar’s weakness, mixed with inflation fears and the wild volatility of cryptocurrencies, has brought gold back into favor. After reaching its highest level since January, the metal was last trading at $1,881 per ounce.
“The current combination of robust U.S. CPI, weak employment, and Fed policymakers prepared to let inflation overshoot while aiming to close the employment gap could keep gold positive for a while longer,” said Michael Hsueh, commodities and FX analyst at Deutsche Bank.
“Gold’s rebound has been linked to a strong rebound in various sectors of the commodities complex this year, which has been increasingly represented by agriculture, metals, and transportation indices, as well as an eight-year high in 10-year inflation forecasts in the United States.”
Investors braced for the restoration of Iranian crude shipments, as oil prices nudged upward on Monday following a drop last week.
Brent crude was up 6 cents to $66.50 per barrel at the time of writing, while US crude was up 11 cents to $63.69 per barrel.