Stocks in Asia traded cautiously on Monday as investors brace for bond market volatility and the withdrawal of stimulus. The dollar went up.
Hong Kong stocks advanced as tech stocks rallied. They fell in South Korea, while China rose. US futures fluctuated after the S&P 500 posted the worst start to the year since 2016, as expectations of faster-than-anticipated US interest rate hikes rocked bond markets and triggered a turnover in high-growth stocks. Japan is closed for a holiday on Monday. The European futures won.
Treasury futures extend losses after posting the biggest drop in a week since February 2021. Australian 10-year bonds fell. Treasury yields rose across the board last week in a selloff sparked by Federal Reserve minutes indicating a willingness to start raising rates as early as March. Cash Treasuries will be unlisted in Asia due to the holiday in Japan.
This week’s US inflation data will be watched closely as concerns grow that the Fed is behind the curve to address elevated price pressures. US employers added fewer staff than expected in December, but wages rose more than expected, prompting the Fed’s case to tighten liquidity.
Markets face increasing volatility as investors grapple with how to change asset prices as the pandemic liquidity that helped propel stocks to record highs retreats. Goldman Sachs Group Inc. now expects the Fed to raise rates four times this year and begin its balance sheet settlement process in July, if not earlier.
“The US Fed needs to be careful when weeding out policy accommodation – it shouldn’t happen too quickly, otherwise it risks disrupting the rebound in economic growth and could trigger another ‘tantrum’,” Diana Mousina, a senior economist in the asset group at AMP Capital, said in a note. She sees more volatility this year due to inflation, Fed rate hikes and geopolitics, as well as the US midterm elections.
Prepare for volatility
Comments from a host of Fed speakers this week will be scrutinized for clues about the central bank’s timing to cut accommodative monetary policy.
“Inflation is the biggest concern and that’s why you have to prepare,” Al Lord, founder and CEO of Lexerd Capital Management, said on Bloomberg Television. “Rates are going up, there is no question here. The Fed is behind the curve. We certainly have to prepare for volatility here. ”
At the same time, the spread of omicron poses a new test for economic activity. China is seeing its first cases of omicron in the community, and as the Lunar New Year festivities approach, the governments of Taiwan and Vietnam are preparing to tighten the restrictions.
Elsewhere, Bitcoin is trading around $ 42,000 as cryptocurrencies continue to struggle. Crude oil stabilized at around $ 79 a barrel after posting the biggest weekly gain in a month.
Here are some key events from this week:
- Atlanta Fed Chairman Raphael Bostic discusses economic outlook Monday
- Confirmation hearing for Fed Chairman Jerome Powell at the Senate Banking Committee. Tuesday
- Esther George, president of the Kansas City Fed, and James Bullard, president of the St. Louis Fed, discuss economics and monetary policy Tuesday
- Wednesday: EIA Crude Oil Inventory Report; China PPI, CPI
- US CPI Wednesday
- United States Senate Banking Committee hearing for Lael Brainard, nominated as Fed Vice Chairman. Thursday
- Richmond Fed Chairman Thomas Barkin; Philadelphia Fed President Patrick Harker; Chicago Fed Chairman Charles Evans on economics and monetary policy. Thursday
- Bank of Korea policy decision briefing on Friday
- Q4 Results: Wells Fargo, Citigroup, JPMorgan. Friday
- New York Fed Chairman John Williams speaks Friday
Some of the main movements in the markets:
- S&P 500 futures were up 0.1% at 5:45 am in London. The S&P 500 fell 0.4%
- Nasdaq 100 futures were up 0.3%. The Nasdaq 100 fell 1.1%
- Australia’s S & P / ASX 200 Index fell 0.1%
- South Korea’s Kospi Index fell 0.9%
- The Hang Seng Index rose 1%
- The Shanghai Composite Index rose 0.3%
- Euro Stoxx 50 futures rose 0.3%
- The Japanese yen was at 115.80 to the dollar, down 0.2%.
- The offshore yuan was at 6.3796 to the dollar.
- Bloomberg’s dollar spot index rose 0.1%
- The euro was at $ 1.1335
- The 10-year Treasury yield advanced four basis points to 1.76% on Friday.
- The yield on Australia’s 10-year bonds increased six basis points to 1.92%.
- West Texas Intermediate crude was $ 79 a barrel
- Gold was at $ 1,791.92 an ounce, down 0.3%.
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