Asian stocks got off to a mixed start on Monday as a U.S. holiday slowed trading ahead of the Federal Reserve’s latest meeting minutes and a core inflation reading that could heighten the risk of a interest rates rise longer.
Geopolitical tensions were still present with North Korea firing new missiles and rumors that Russia stepped up attacks in Ukraine ahead of the first anniversary of the invasion on Friday.
The White House was reportedly considering new sanctions against Russia, while Secretary of State Antony Blinken warned Beijing on Saturday of the consequences of any material support, including weapons, to Moscow.
All of this resulted in a cautious start and MSCI’s broadest index of Asia-Pacific stocks outside of Japan remained broadly flat, having slipped 2.2% last week. The Japanese Nikkei fell 0.2% and South Korea 0.4%.
S&P 500 futures fell 0.2%, while Nasdaq futures fell 0.3%. The S&P hit a two-week low on Friday as a string of good US economic news suggested the Fed may have more to do on interest rates, even after a whopping 450 basis point hike in 11 months.
“This is the most aggressive Fed tightening in decades and U.S. retail sales are the strongest they’ve ever been; unemployment is at a 43-year low; payrolls are up more than 500k in January and CPI/PPI inflation picks up again,” BofA analysts noted. “It’s a very underachieved Fed mission.”
They warned that the S&P 500’s repeated failure to break resistance at 4,200 could trigger a retreat to 3,800 by March 8.
Markets have steadily raised the expected peak for Fed funds to 5.28%, while sharply reducing rate cuts for later this year and next.
Minutes from the Fed’s latest meeting, due out on Wednesday, should add color to the deliberations, although they were somewhat overtaken by January’s jobs and retail sales numbers.
This last point means that the personal consumption expenditure (PCE) figures from the United States, due on Friday, should show a jump of 1.3% in January, more than offsetting the weakness of the previous two months.
The Fed’s favorite inflation gauge, the core PCE, is expected to rise 0.4%, the biggest gain in five months, while the annual pace may have slowed by just a fraction, at 4.3%.
At least five Fed chairs will also speak this week, to provide ongoing commentary.
Earnings season continues this week with major retailers Walmart and Home Depot offering consumer health updates.
Other companies to release their results include chipmaker Nvidia, COVID-19 vaccine maker Moderna and e-commerce company eBay.
The prospect of further Fed hikes pushed Treasury yields higher and generally supported the dollar, which hit a six-week high across a basket of currencies last week.
The euro remained stuck at $1.0676, after hitting a six-week low of $1.0613 on Friday, while the dollar was close to a two-month high against the yen at 134.34.
Investors eagerly await Friday’s testimony from the newly appointed head of the Bank of Japan, and his thoughts on the future of yield curve control (YCC) and super-easy politics.
Any hint of a premature end to the YCC could send yields soaring globally and push the yen higher. Analysts therefore assume that Kazuo Ueda will be careful not to scare off the markets.
Rising yields and a stronger dollar did not help gold, which was struggling at $1,837 an ounce and not far off a five-week low at $1,807. [GOL/]
Oil prices were trying to stabilize after falling around 4% last week on signs of ample supply and concerns about future demand. [O/R]
Brent rose slightly 14 cents to $83.14 a barrel, while U.S. crude rose 15 cents to $76.49.