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 inflation.
Futures dipped for Japan, Australia and Hong Kong, while S&P 500 and Nasdaq 100 contracts fell. Global shares completed a third straight advance last week in a rebound from bear-market lows.
Strong US jobs figures Friday reinforced the case for more Fed monetary tightening. They also left a question mark over wagers on a pivot to rate cuts in 2023.
That backdrop has left Treasury yields sharply higher and bolstered the dollar, which was steady against key peers in early Asian trading. Crude oil, meanwhile, retreated further below $90 a barrel.
Traders now see greater odds of another 75 basis points Fed hike in September, part of a global wave of rate increases that threaten to hit economic expansion.
This week’s US inflation reading could spark more market volatility by shaping views on the Fed policy path. While many strategists anticipate price pressures are topping out, the unknown is whether they will stay stubbornly elevated.
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.
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.
Incoming economic reports showed China’s trade surplus rose to a record. The nation’s economic rebound continues to face potential global headwinds as well as domestic Covid flareups and property-sector woes.
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.
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