(Bloomberg) — Stocks in Asia look set for a cautious start on Monday following a jump in Treasury yields and the dollar on expectations of further aggressive Federal Reserve interest-rate hikes to tame elevated inflation.
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Futures dipped for Japan, Australia and Hong Kong, while S&P 500 and Nasdaq 100 contracts declined. Global shares completed a third straight advance last week in a rebound from bear-market lows.
Strong US jobs data Friday added to the case for more Fed monetary tightening. That left Treasury yields sharply higher and spurred the greenback. A key part of the US bond curve is the most inverted since 2000, suggesting investors foresee a recession ahead as the Fed applies the brakes on the economy.
Crude oil, meanwhile, retreated further below $90 a barrel, hampered by worries about the demand outlook. Both gold and Bitcoin wavered.
Traders now see greater odds of another 75 basis-point Fed hike in September, part of a global wave of rate increases. US inflation data this week could shape views on the policy path and inject more market swings. While price pressures may be topping out, it’s unclear if they will stay stubbornly high.
If investor projections for a peak in the fed funds rate top 4% following the inflation data, we could see “risk rolling over, with volatility rising, defensives outperforming, and better shorting opportunities” kicking in, Chris Weston, Pepperstone Group Ltd. head of research, wrote in a note.
The latest comments from Fed officials left a question mark over wagers on a policy pivot toward reducing borrowing costs next year.
‘Far From Done’
San Francisco Fed President Mary Daly said the US central bank is “far from done yet” in bringing down price pressures. Governor Michelle Bowman said the Fed should keep considering large hikes similar to the 75 basis-point increase approved last month until inflation meaningfully declines.
Elsewhere in the US, the Senate passed a landmark tax, climate and health-care bill, speeding a slimmed-down version of President Joe Biden’s domestic agenda on a path to becoming law.
Incoming reports showed China’s trade surplus rose to a record. The nation’s economic rebound faces potential global headwinds as well as domestic Covid flareups and property-sector woes.
Investors also continue to monitor tension over Taiwan, which reiterated it won’t succumb to pressure from China after days of military drills in the air and seas surrounding the island.
What to watch this week:
Iran nuclear deal talks, Monday
US CPI data, Wednesday
China CPI, PPI Wednesday
Chicago Fed President Charles Evans, Minneapolis Fed President Neel Kashkari due to speak, Wednesday
US PPI, initial jobless claims, Thursday
San Francisco Fed President Mary Daly is interviewed on Bloomberg Television, Thursday
Eurozone industrial production, Friday
US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
S&P 500 futures fell 0.3% as of 8:21 a.m. in Tokyo. The S&P 500 fell 0.2%
Nasdaq 100 futures fell 0.4%. The Nasdaq 100 fell 0.8%
Nikkei 225 futures fell 0.2%
Australia’s S&P/ASX 200 Index futures fell 0.1%
Hang Seng Index futures fell 0.5%
The Bloomberg Dollar Spot Index rose 0.1%
The euro was at $1.0173, down 0.1%
The Japanese yen was at 135.08 per dollar, down 0.1%
The offshore yuan was at 6.7640 per dollar
West Texas Intermediate crude fell 1.2% to $87.96 a barrel
Gold was at $1,774.10 an ounce, down 0.1%
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