Asian Stocks Mixed as Hawkish Fed Halts S&P Rally: Markets Wrap

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(Bloomberg) — Asian stocks fluctuated as investors weighed hawkish comments from Federal Reserve officials and looked toward the release of US inflation data on Thursday for clarity on the trajectory for interest rates.

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Stock gauges in Australia and Southeast Asia fell, while those in mainland China fluctuated and Japan’s Topix Index advanced after reopening following a public holiday. Contracts on the S&P 500 slipped after the index failed to stay above the 3,900 level, erasing an advance that reached almost 1.5% Monday.

Traders hoping for a quick end to aggressive rate hikes as global inflation cools had a reality check on Monday, when San Francisco Fed resident Mary Daly said she expects the central bank to raise rates to somewhere over 5%. Her Atlanta counterpart Raphael Bostic said policy makers should hike above 5% by early in the second quarter and then go on hold for “a long time.”

That leaves those betting on slower hikes waiting on Thursday’s US inflation report, which will come out almost a week after the latest jobs data showed wage growth has decelerated. The figures will be among the last such readings policy makers will see before their Jan. 31-Feb. 1 gathering.

“Expect some profit taking, position squaring ahead of the CPI print later this week,” said Craig Johnson, chief technical research analyst at Piper Sandler & Co. “That is the next major event for global markets. I suspect most traders will be pretty flat coming into the economic print.”

The Bloomberg Dollar Spot Index edged down 0.1%. Treasury 10-year yields held at 3.53%. Japan’s 10-year yield was at 0.5%, the ceiling for the Bank of Japan’s yield-curve control policy.

“In addition to the probability of interest rates remaining high and a possible economic slowdown, any bullishness triggered by slowing inflation may be offset by stocks still-high valuations and overly optimistic earnings expectations,” said Chris Larkin at E*Trade from Morgan Stanley. “It could be a recipe for choppy near-term and long-term trading.”

Concerns about recessions in the US and Europe this year have been countered by renewed optimism over China. The world’s second-largest economy made a U-turn on strict Covid restrictions in December and swiftly followed up with other market-friendly changes.

The Chinese economy is now forecast to expand by 4.8% this year, according to data compiled by Bloomberg. Still, deflationary pressure worsened in the fourth quarter, with price growth likely to be subdued even when the economy rebounds later this year, according to China Beige Book International.

Key events this week:

  • US wholesale inventories, Tuesday

  • Fed Chair Jerome Powell among speakers at Riksbank symposium in Stockholm, Tuesday

  • World Bank expected to release global economic prospects report, Tuesday

  • ECB Governing Council members speak at Euromoney conference in Vienna, Wednesday

  • US CPI, initial jobless claims, Thursday

  • St Louis Fed President James Bullard at Wisconsin Bankers Association virtual event, Thursday

  • Richmond Fed President Thomas Barkin speaks at VBA/VA Chamber, Thursday

  • China trade, Friday

  • US University of Michigan consumer sentiment, Friday

  • Citigroup, JPMorgan Chase, Wells Fargo report earnings, Friday

This week’s MLIVE Pulse Survey:

Some of the main moves in markets as of 2:47 p.m. Tokyo time:

Stocks

  • S&P 500 futures fell 0.1%; S&P dropped 0.1% Monday

  • S&P/ASX 200 fell 0.3%

  • Hang Seng was little changed

  • Japan’s Topix rose 0.4%

  • Shanghai Composite was little changed

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro rose 0.1%

  • The Japanese yen rose 0.2% to 131.68 per dollar

  • The offshore yuan strengthened 0.1%

Cryptocurrencies

  • Bitcoin strengthened 0.2%

  • Ether rose 0.6%

Bonds

  • The yield on 10-year Treasuries was little changed at 3.53%

  • Australia’s 10-year yield fell one basis point

Commodities

  • West Texas Intermediate crude fell 0.5% to $74.29 a barrel

  • Spot gold rose 0.2% to $1,874.74 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi.

(An earlier version of this story was corrected to fix the spelling of a Fed official’s name.)

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