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As the Asian stock market began its week cautiously, it is likely to see rising interest rates in the UK and mixed reports on U.S. jobs and manufacturing, while the rise in oil added to concerns about inflation.
Data released on Sunday showed a slowdown in Chinese plant activity in January, with a resurgence of COVID-19 cases and a severe blockade resulting in production and demand.
The fight against Ukraine remains a thorn in the side of the market, with concerns that the Russian invasion would cut off essential gas supplies to Western Europe.
The New Moon holiday was in poor condition and MSCI’s broadest Asia Pacific stock index fell 0.1 percent outside Japan in slow trade.
Japan’s Nikkei fell 0.3 percent on industrial product and retail sales data as forecasted by forecasts. The S&P 500 futures and Nasdaq futures eased 0.3 percent, dismantling some of Friday’s rebounds.
The Bank of England is likely to raise rates again this week, following suit a global trend towards stricter policy. The European Central Bank will also meet this week, but it is expected to hold on to the argument that inflation will back down over time.
Markets have risen in price this year with five increases from the Federal Reserve to 1.25 per cent, although investors still see rates as historically low at 1.75-2.0 per cent.
Bank of America (BofA) analysts believe this is not hawkish enough.
“Fed raises low prices”
“We point out that the markets have underestimated the Fed’s gains at the beginning of the last two rounds of the cycle and we believe that will be the case again,” says BofA chief economist Ethan Harris.
“Starting in March, we expect the Fed to start raising rates by 25bp at all remaining meetings this year, for a total of seven increases, with four more increases next year,” he added. “This would bring the terminal rate to 2.75-3.00 per cent by the end of 2023, which should slow growth and inflation.”
The Fed’s diary is relatively sparse this week, with only three regional presidents scheduled to speak, but there is plenty of data highlighted in the ISM’s manufacturing and services readings and January job reports.
The number of incumbent payrolls is expected to be soft given the rise in coronavirus cases and the bad weather. The average forecast is only an increase of 155,000, while the forecast goes from a gain of 385,000 to a decrease of 250,000.
“We expect out-of-farm payrolls to rise by 50,000 in January and the unemployment rate to remain at 3.9 per cent,” Barclays analysts said in a statement.
“We see a negative risk in our forecast for the 8.8 million adults who did not work in the week of January 11 to care for someone who is ill or who were themselves ill.”
The Fed’s mischievous turnaround has boosted the U.S. Treasury’s 10-year Treasury yield by 27 basis points this month to 1.78 percent, making bonds relatively more attractive compared to equities, and especially compared to growth stocks with valuations.
It has also strengthened the U.S. dollar as it rose 1.7 percent this month against a basket of major rivals from July 2020 to a high of 97,441.
The euro fell 1.7 percent last week to its lowest level since June 2020 and last traded at $ 1.1151. The dollar also gained a safe haven yen, rising 1.3 percent from 115.27 yen last week.
Higher yields weighed heavily on gold, which is unprofitable, leaving the metal at $ 1,789 an ounce, down 2.4 percent from last week.
Oil prices were hovering around seven-year highs as geopolitical tensions rose for six weeks in a row as concerns about tight energy supplies increased.
Brent rose 94 cents to $ 90.97 a barrel, while U.S. crude rose 89 cents to $ 87.71 a barrel.
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