CNBC Daily Open: Fed rate cuts come under scrutiny

Nikkei leads Asia stocks #

Japan stocks led gains in Asia on Monday as investors awaited the outcome of the central bank’s two-day policy meeting that could decide the fate of the world’s last negative interest rate regime. The Nikkei 225 and the Topix gained, while China’s CSI 300 index and Hong Kong’s Hang Seng also rose. Wall Street ended lower on Friday as focus shifts to the Federal Reserve’s policy meeting this week for insights on rate cuts. The S&P 500 posted its second straight weekly drop, down 0.65%. The Nasdaq retreated 0.96% and the 30-stock Dow lost 0.49%.

China’s strong economic data #

China started the year a positive note as the latest economic data topped estimates. Retail sales grew better than expected at 5.5%, while industrial output rose 7%, above the 5% forecast. But the country’s ailing property sector continues to remain weak. Real estate investment was down 9% in the first two months of 2024, from a year ago.

India aims to be chip leader #

India is aiming to become a global chip leader in five years, said a minister. He added the country is well positioned to be a “trusted value chain partner” in the sector. “Some people call it ‘friendshoring.’ I call it ’trust shoring’ because there is a global trust in India,” said the minister.

White House on TikTok #

The White House has called on a more divided Senate to ‘move swiftly’ on the TikTok bill that requires a Chinese tech company to sell the video app or face a ban in the U.S. Last week, the House of Representatives passed the legislation with strong bipartisan support and the President has indicated he would sign it if approved by Congress.

U.S. election risk on China stocks #

Goldman Sachs has revised its barometer for the level of risk from U.S.-China tensions in Chinese stocks. It now stands at 53 out of 100, signaling a “somewhat benign” outlook for relations between the two countries. “The build-up to and the election will be consequential to asset markets globally, US-China relations, and the returns of Chinese equities,” the analysts said.

The bottom line #

It will be a pivotal week for Wall Street as markets attention will turn to the Fed.

Signals from Fed Chair Jerome Powell and the other officials on future rate cuts will be in sharp focus as policymakers give updates on rates, economic growth, inflation and unemployment at their two-day meeting which wraps up on Wednesday.

Last week’s one-two punch of bad news on consumer and producer prices, sparked investor anxiety that inflation may have plateaued as price pressures remain sticky.

“Hotter-than-expected inflation data to start the year argue for a hawkish-leaning message from the Fed at the March FOMC meeting. That said, in a very close call, we do not yet expect this to manifest in the Fed signaling less easing this year,” said a bank in a note.

“Our baseline remains that the first-rate cut will come in June and the Fed will deliver 100bps of reductions this year. However, risks are clearly skewed to more hawkish outcomes. The timing and pace of rate cuts could well be irregular this cycle and will likely be highly data dependent.”

Investors will also want to know whether the Fed will continue to pencil in three rate cuts for this year. Some economists argue there’s a good chance it could be pared back to only two.

A prominent CEO recently said the central bank should move slowly on rate cuts given inflation pressures.

“You can always cut it quickly and dramatically. Their credibility is a little bit at stake here,” he said. “I would even wait past June and let it all sort it out.”