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SYDNEY (Reuters) – Asian stocks traded cautiously on Monday as U.S. earnings season gets into full swing this week, while a raft of Chinese data will offer insight into how the world’s second-largest economy is recovering.

Markets have also seen a mood shift on the outlook for U.S. interest rates, with CME futures implying an 81% chance the Federal Reserve will hike by a quarter point to 5.0-5.25% in May.

Resilience in core U.S. retail sales and a jump in inflation expectations reported on Friday have led investors to trim the amount of easing expected later this year to around 55 basis points (bp).

“Early April data on the labour market, inflation and consumption all indicate the Fed has more work to do and that a soft or bumpy landing is a greater probability than a sharp and relatively sudden contraction in activity,” said analysts at ANZ in a note.

“Our baseline view is for two more 25 bp hikes and, if data does not start to weaken soon, the market will need to reprice for no rate cuts in the second half of this year.”

At least eight top Fed officials are speaking this week, including three governors, and could generate plenty of headlines to move the dial further.

The resulting caution saw MSCI’s broadest index of Asia-Pacific shares outside Japan ease 0.2%, while Japan’s Nikkei went flat.

EUROSTOXX 50 futures and FTSE futures both edged up 0.2%.

Chinese blue chips added 1.0% ahead of data on retail sales, industrial output and gross domestic product due on Tuesday, where analysts suspect the risks are for an upside surprise given recent strength in trade.

Figures over the weekend showed new home prices climbing at the fastest pace in 21 months, supporting consumer demand and confidence.

EYES ON EARNINGS OUTLOOK

S&P 500 futures inched up 0.2%, while Nasdaq futures were flat as investors awaited a slew of earnings reports led by Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and Bank of America (NYSE:BAC).

Other big names reporting earnings include Johnson & Johnson (NYSE:JNJ), Netflix (NASDAQ:NFLX) and Tesla (NASDAQ:TSLA).

Analysts expect Q1 S&P 500 earnings to fall 5.2% from the year-earlier period, though BofA analyst Savita Subramanian is more concerned about the outlook for 2023.

“Overall, we expect an in-line quarter, but big cuts for the full-year,” BofA warned. “Our 2023 EPS estimate for the S&P 500 remains $200, still 9% below consensus estimates.”

“Demand for consumer goods has already softened and now we’re watching services,” Subramanian said. “Airlines, hotels and restaurants are feeling pressure from slowing macro, tough comps (comparison periods) and no respite from wage pressure.”

In bond markets, the shift in Fed expectations pushed U.S. two-year yields up to 4.12%, having risen 12 basis points last week. [US/]

Yet, the outlook has also turned more hawkish on the European Central Bank (ECB), sending German two-year yields surging 32 basis points over the week for the biggest increase since September.

Futures have 37 basis points of ECB tightening priced for the May meeting and 82 basis points by October.

That sea change saw the euro gain 0.8% last week, even after a dip on Friday. So far on Monday, the single currency was holding at $1.0985 having hit a one-year high of $1.1075 last week.

The dollar has fared better on the yen as the Bank of Japan remains committed to its super-easy monetary policy, at least for now. That kept the dollar firm at 134.13 yen, after rallying 1.2% last week.

The bounce in the dollar took some of the shine off gold which was back at $2,004 an ounce, off last week’s peak above $2,048. [GOL/]

Oil prices have enjoyed four straight weeks of gains, helped by cuts to output and as the West’s energy watchdog said global demand will climb to a record this year on the back of a recovery in Chinese consumption. [O/R]

The market was consolidating on Monday with Brent down 3 cents at $86.28 a barrel, while U.S. crude dipped 5 cents to $82.47.