Asian stocks were mixed Tuesday after a US rally fizzled out as Federal Reserve officials signaled the central bank will likely need to raise interest rates above 5% before pausing and holding for some time.
(Bloomberg) — Asian stocks were mixed Tuesday after a US rally fizzled out as Federal Reserve officials signaled the central bank will likely need to raise interest rates above 5% before pausing and holding for some time.
Australian stocks fell and equity futures for Hong Kong were slightly weaker, while Japan’s Topix Index rose after reopening following a public holiday Monday. Contracts on the S&P 500 edged lower after the index failed to stay above the key 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 Fed Bank of San Francisco President Mary Daly said she expects the central bank to raise rates to somewhere over 5%. Her Atlanta counterpart Raphael Bostic noted that 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 CPI report, that will come out almost a week after the latest jobs data showed that wage growth has decelerated. The figures will be among the last such readings policy makers will see before their Jan. 31-Feb. 1 gathering.
“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.”
The Dow Jones Industrial Average underperformed, while the Nasdaq 100 rose thanks to gains in big tech, with Tesla Inc. surging about 6%. The dollar edged higher against most of its Group-of-10 counterparts on Tuesday, gaining 0.2% versus the yen. Treasury 10-year yields rose one basis point in early Asian 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 an abrupt U-turn on strict Covid restrictions in early December and swiftly followed up with other market-friendly changes. Its economy is now forecast to expand by 4.8% this year, according to data compiled by Bloomberg. The MSCI China Index is up roughly 50% since it hit an 11-year low in October.
Chinese officials are considering a record quota for special local government bonds this year and widening the budget deficit target as they ramp up support for the economy, according to people familiar with the matter.
Equities in developing nations entered a bull market amid a rally fueled by optimism over China’s reopening and a weakening dollar. The MSCI Emerging Markets Index advanced 2.5% on Monday, taking its gains from an Oct. 24 low to over 20%.
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 9:13 a.m. Tokyo time:
Stocks
- The S&P/ASX 200 fell 0.2%
- Hang Seng futures fell 0.2%
- Japan’s Topix rose 0.9%
- S&P 500 futures were little changed; S&P fell 0.1% Monday
- The Nasdaq 100 rose 0.6% Monday
Cryptocurrencies
- Bitcoin rose 1.5% to $17,206.51
- Ether rose 4% to $1,319.87
Bonds
- The yield on 10-year Treasuries was little changed 3.54%
- Australia’a 10-year yield fell one basis point to 3.71%
Commodities
- West Texas Intermediate crude rose 0.1%
- Spot gold fell 0.1% to $1,869.84 an ounce
This story was produced with the assistance of Bloomberg Automation.
(An earlier version of this story corrected the spelling of Atlanta Fed official’s name.)
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