Dollar Rises, Stocks Face Headwinds From Fed Rates: Markets Wrap

The dollar rose in early trading on Monday, adding to a third week of gains as hawkish comments by Federal Reserve officials and geopolitical tensions bolstered the appeal of the greenback. Asian stocks looked set for a mixed open.

(Bloomberg) — The dollar rose in early trading on Monday, adding to a third week of gains as hawkish comments by Federal Reserve officials and geopolitical tensions bolstered the appeal of the greenback. Asian stocks looked set for a mixed open.

Equity futures for Japan pointed to small gains while those for Hong Kong fell and contracts for Australia’s benchmark were flat. The S&P 500 Index declined Friday and dropped for a second week, while the tech-heavy Nasdaq 100 also slid, but eked out a weekly gain.

A report from Goldman Sachs Group Inc. tipping a rebound in Chinese stocks added a counterweight to the flow of news damping appetite for equities. Investors in China will also be on the lookout for any potential cut to the nation’s prime loan rates Monday.

There was no cooling of US-China tensions over the weekend, with Beijing’s top diplomat labeling the American response to the balloon it shot down “hysterical” while his counterpart Antony Blinken said its entry into his nation’s airspace was “irresponsible.” Meanwhile, North Korea test-fired an intercontinental ballistic missile.

Above and beyond this, investors are focused on the shifting outlook for interest rates, with traders fully pricing in quarter-point interest rate increases at the Fed’s next two meetings after policymakers said Thursday that bigger hikes were not out of the question. 

Federal Reserve Bank of Richmond President Thomas Barkin said Friday that he favored a quarter-point interest rate hike in February to give the central bank “flexibility” in its quest to tamp down inflation. Fed Governor Michelle Bowman said rates need to keep going higher since inflation remains “much too high.”

In commodities, oil capped its longest string of daily losses on the year last week as rising US inventories and the prospect of further tightening by the Fed eclipsed the lift from signs that Chinese energy demand is improving. 

Key events this week:

  • Earnings for the week are scheduled to include: Alibaba, Anglo American, AXA, BAE Systems, Baidu, BASF, BHP, Danone, Deutsche Telekom, EBay, Holcim, Home Depot, Hong Kong Exchanges & Clearing, HSBC, Iberdrola, Lloyds Banking Group, Moderna, Munich Re, Newmont, Nvidia, Rio Tinto, Walmart, Warner Bros Discovery
  • China loan prime rates, Monday
  • US financial markets closed for Presidents’ Day holiday, Monday
  • PMIs for Japan, Eurozone, UK, US, Tuesday
  • US existing home sales, Tuesday
  • US MBA mortgage applications, Wednesday
  • The Federal Reserve minutes from Jan. 31-Feb. 1 policy meeting, Wednesday
  • Eurozone CPI, Thursday
  • US GDP, initial jobless claims, Thursday
  • Atlanta Fed President Raphael Bostic speaks, Thursday
  • G-20 finance ministers and central bank governors meet in India, Thursday-Friday
  • Japan CPI, Friday
  • BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 closed 0.3% lower on Friday and the Nasdaq 100 closed 0.7% lower
  • Nikkei 225 futures rose 0.2%
  • Australia’s S&P/ASX 200 Index futures were little changed
  • Hang Seng Index futures fell 0.6%

Currencies

  • The euro was little changed at $1.0689
  • The Japanese yen fell 0.1% to 134.30 per dollar
  • The offshore yuan was little changed at 6.8766 per dollar
  • The Australian dollar fell 0.1% to $0.6872

Cryptocurrencies

  • Bitcoin was little changed at $24,539.17
  • Ether rose 0.1% to $1,688.21

Bonds

  • The yield on 10-year Treasuries declined five basis points to 3.81% on Friday
  • Australia’s 10-year yield declined four basis points to 3.78%

Commodities

  • West Texas Intermediate crude fell 2.7% to $76.34 per barrel on Friday
  • Gold rose 0.3% to $1,842.36 an ounce on Friday

This story was produced with the assistance of Bloomberg Automation.

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