SYDNEY, Sept 16 V7N - Asian stocks began the week cautiously as markets anticipate a likely start to a U.S. easing cycle, with uncertainty around the potential size of the cut. Central banks in Japan and the UK are also expected to keep rates unchanged this week. A busy economic calendar includes U.S. retail sales and industrial production data.

Geopolitical tensions remain significant, particularly with news of a second assassination attempt on Republican presidential candidate Donald Trump, according to the FBI.

Due to holidays in China, Japan, South Korea, and Indonesia, trading volumes were light, resulting in modest early movements. The MSCI Asia-Pacific index was nearly flat, having gained 0.8% last week. Japan’s Nikkei was closed, with futures trading lower due to recent yen gains impacting exporters. U.S. S&P 500 futures were stable, while Nasdaq futures fell 0.1%. EUROSTOXX 50 and FTSE futures saw slight increases.

Economic data from China was disappointing, with industrial output growth slowing to a five-month low in August and weaker retail sales and new home prices. This data suggests a need for additional economic stimulus if China aims to meet its 2024 growth target of around 5%. Analysts expect increased government spending on infrastructure if economic conditions worsen further.

In the U.S., futures indicate a growing expectation of a half-point rate cut by the Federal Reserve, with the probability rising to 59% from 30% a week ago. JPMorgan economist Michael Feroli anticipates a 50 basis point cut, citing that current policy is overly restrictive. If implemented, this cut could be followed by further reductions totaling 100 basis points for the remainder of the year and 150 basis points for 2025.

Bond markets have reacted to the prospect of aggressive easing, with two-year Treasury yields dropping to 3.593%, the lowest since September 2022. The Bank of England is expected to keep rates at 5.00% when it meets on Thursday, with a 31% chance of a further cut priced in. The Bank of Japan, meeting on Friday, is anticipated to maintain its current stance but may signal future tightening.

The drop in Treasury yields has strengthened the yen, which is trading at 140.53 yen per dollar, following a 0.9% decline last week. The euro held steady at $1.1090, constrained by expectations of more rate cuts from the European Central Bank. The Canadian dollar remained at 1.3580 per U.S. dollar after comments from Bank of Canada Governor Tiff Macklem suggested faster rate cuts could be on the horizon.

Gold prices held steady near an all-time high, trading at $2,582 an ounce. Oil prices edged up, with Brent crude rising to $71.78 per barrel and U.S. crude at $68.93 per barrel, partly due to ongoing disruptions in Gulf of Mexico oil production.

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