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Author: Wayne Cole
SYDNEY (Reuters) – Asian stock markets fell silent on Monday as investors backtracked on another reading of U.S. inflation to signal the Federal Reserve’s early rate hike, raising bond yields and penalizing technology stocks.
The outbreak of coronary artery disease worldwide threatens to reduce consumer spending and growth, as the Fed is looking to turn off liquidity outflows, a difficult time for markets that are dependent on endless cheap money.
Thus, initial market action was cautious with a 0.2% drop and Nasdaq futures with 0.1%.
The broadest MSCI index for Asia-Pacific equities outside of Japan was flat, with South Korea losing 0.7%. It has remained stable for the time being, after falling by 1.0% last week.
Analysts fear the US consumer price report on Wednesday will show that core inflation will rise to a 5.4% high in decades and lead to a rate hike as soon as March.
Although the December payroll failed to forecast, the fall in the unemployment rate to 3.9% and the strength of wages suggested that the economy was short of workers.
“It was consistent with the Fed’s view of evolution that the labor market is approaching or is already at maximum employment creating wage pressures,” analysts at NatWest Markets said.
“This should add to speculation about the March rise, and we have removed the expectation that it will happen in March instead of the Fed’s rise in June.”
A number of Fed officials will come out this week to offer final reflections, including President Jerome Powell and Governor Lael Brainard, to address the confirmation hearings.
Markets changed rapidly to reflect the risks, with the chances of the futures rising to 0.25% in March, rising by more than 70% and a rise of at least two more by the end of the year.
Technology and growth stocks fell as investors shifted to banks and energy companies as bonds took a beating.
Yields were the last time seen in early 2020, at 1.765%, up 25 points from the last move since the biggest move since the end of 2019. The target of the following graph is the 1.95 / 1.97% area. [U/S]
“We believe that the long-term increase in Treasury yields needs to move forward,” said Nicholas Farr, an economist at Capital Economics.
“Markets are still underestimating how much the federal funds rate will rise in the coming years, so our forecast is that the 10-year yield will rise by another 50 bp to 2.25% by the end of 2023.”
The Fed’s hawkish change has benefited the U.S. dollar, even though the payroll on Friday’s earnings report did not live up to high market expectations.
It was flat at 95,764 after falling 0.5% on Friday, but has support at 95,568.
The euro rebounded to $ 1.1354, leaving the top of the last $ 1.1184 / 1.1382 trading range. The Japanese yen rested at 115.64 as it rested from its last bear as the dollar faded from last week’s 116.34 peak.
In commodity markets, gold was stronger than $ 1,795 an ounce, but higher than the January high of $ 1,831.
Oil prices fell at the start of trade, with a 5% rise last week, partly helped by the unrest in Kazakhstan and the Libyan disruption. [O/R]
The barrel fell 28 cents to $ 81.47 and lost 36 cents to $ 78.54.
Chart: Asian stock markets: https://product.datastream.com/dscharting/gateway.aspx?guid=516bc8cb-b44e-4346-bce3-06590d8e396b&action=REFRESH
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