By Wayne Cole
SYDNEY (Reuters) – Asian stocks got off to a slow start on Monday as a US bank holiday meant slow trading ahead of minutes from the Federal Reserve’s latest meeting and a core inflation reading that could raise the risk of a rise in interest rates for longer.
Geopolitical tensions were pervasive as North Korea fired more missiles and talk of Russia stepping up attacks in Ukraine ahead of the one-year anniversary of the invasion on Friday.
There were reports that the White House was planning new sanctions against Russia, while Secretary of State Antony Blinken on Saturday warned Beijing of consequences if it provides material assistance, including arms, to Moscow.
All of this made for a cautious start, and MSCI’s broadest index of Asia Pacific equities outside Japan was broadly flat after falling 2.2% last week. Japan’s Nikkei slipped 0.2% and South Korea 0.4%.
S&P 500 futures are down 0.2%, while Nasdaq futures are down 0.3%. The S&P hit a two-week low on Friday as a string of strong US economic news suggested the Fed could potentially have more to do with interest rates, even after raising a whopping 450 basis points in 11 months.
“It’s the Fed’s most aggressive tightening in decades and US retail sales are at all-time highs; unemployment at a 43-year low; payrolls are up over 500k in January and CPI/PPI inflation is accelerating again,” BofA analysts noted. “This is a Fed mission that is far from being accomplished.”
They warned of the S&P 500’s repeated failure to break resistance at 4,200, which could trigger a drop to 3,800 by March 8th.
Markets have steadily raised the expected peak for Fed funds to 5.28% while rate cuts for later this year and next have been scaled back sharply.
Minutes from the Fed’s last meeting, due Wednesday, should add color to the deliberations, although somewhat replaced by barnstormed numbers on January payrolls and retail sales.
The latter means that US consumer spending (PCE) figures, due this Friday, are expected to show a 1.3% increase in January, more than recovering from the weakness of the previous two months.
The Fed’s favorite indicator of inflation, the core PCE index, is expected to rise 0.4%, its biggest gain in five months, while the annual pace may have slowed only a fraction to 4.3%.
There are also at least five Fed Presidents speaking this week for ongoing comment.
Earnings season continues this week, with major retailers Walmart and Home Depot set to offer updates on consumer health.
Other companies reporting are chip company Nvidia, COVID-19 vaccine maker Moderna and e-commerce store eBay.
The prospect of more Fed hikes has lifted Treasury yields and generally supported the dollar, which hit a six-week high in a basket of currencies last week.
The euro stalled at $1.0676 after hitting a 6-week low of $1.0613 on Friday, while the dollar was just below a two-month high at 134.34 against the yen.
Investors are eagerly awaiting Friday’s testimony from the newly appointed Bank of Japan governor and his reflections on the future of yield curve control (YCC) and super easy policy.
Any hint of a premature end to YCC could send global yields higher and the yen soaring, so analysts believe Kazuo Ueda will be careful not to spook markets.
Higher yields and a firmer dollar did not bode well for gold, which struggled at $1,837 an ounce and not far from a five-week low of $1,807. [GOL/]
Oil prices have been trying to stabilize after falling about 4% over the past week on signs of ample supply and concerns about future demand. [O/R]
Brent rose 14 cents to $83.14 a barrel, while US crude rose 15 cents to $76.49.
(Reporting by Wayne Cole; Editing by Shri Navaratnam)
Don’t miss interesting posts on Famousbio
