There are various reasons for investors to be cautious in Asia today. Markets need to digest and wait for political certainty in the United Kingdom and France (where elections brought political uncertainty), while two big central banks (the US Federal Reserve and the Bank of Japan) are in the spotlight this week as they conduct their monthly policy meetings.
Most market participants expect the US Federal Reserve to raise its key interest rate 0.25 percent at the two-day meeting that ends on Wednesday 14 June 2017. The Fed is also expected to give some further guidance on its balance sheet reduction. As such, the US dollar should get some support although so far on Monday morning (12/06) the US dollar has been rather flat against Asian emerging market currencies. Market participants will also focus on whether the Fed believes the US economy is strong enough to cope with further rate increases through the year 2017. While the US dollar should strengthen on a "hawkish" statement, it should have a negative impact on equity markets. However, equity markets and the US dollar are estimated to have priced in (to a high extent) a three-rate-hikes policy in 2017.
Meanwhile, the Bank of Japan is also set to meet this week. Most market participants do not expect a change in monetary policy but they will be looking for any hints regarding an exit strategy for monetary stimulus in the future. Earlier this morning, it was announced Japan's April machine orders fell 3.1 percent month-on-month, a disappointing result. The Nikkei 225 fell about 0.65 percent on Monday morning.
Regarding politics, Asian markets need to digest last week's UK election that did not show a clear majority for any party and therefore raises political uncertainty (as it basically means the UK will have a weaker government). Therefore, a hard Brexit seems highly unlikely now.
Matters are much clearer in France where more than 90 percent of the votes in the nation's parliamentary election have been counted. The results indicate President Emmanuel Macron's new movement won by a large margin and is set to land a huge majority in the final-round vote. However, turnout is estimated at below 49 percent, a record low in modern French politics.
So far on Monday (12/06) most stocks in Asia are down, a decline that is led by tech companies (following a slide by technology shares on Wall Street at the end of last week). Markets in Australia, Malaysia and the Philippines are all closed for a public holiday on Monday.
The crude oil price continued its gain on Monday (12/06) after last Friday's news about a Nigerian pipeline leak. This leak somewhat eases the supply concerns that have been weighing on the crude price. However, last week oil prices finished down by about 4 percent.
Data that is due on Monday: Singapore's April retail sales, China's May new yuan loan numbers, and India's April industrial production figures as well as May CPI data.
Indonesia just opened Monday's trading. The benchmark Jakarta Composite Index rose modestly at 0.03 percent, while the Indonesian rupiah appreciated slightly (0.02 percent) against the US dollar (Bloomberg Dollar Index).