Asia stocks set for tepid opening on Fed

Equity futures for Australia and Hong Kong were slightly weaker, while Japanese stocks may trade higher after markets there reopen following a public holiday Monday. The S&P 500 failed to stay above the key 3,900 level, erasing an advance that reached almost 1.5%. 

The Dow Jones Industrial Average underperformed, while the Nasdaq 100 rose thanks to gains in big tech, with Tesla Inc. surging about 6%. The dollar and Treasury yields pared their declines.

Traders hoping for a quick end to aggressive rate hikes as global inflation cools had a reality check on Monday, when Fed Bank of San Francisco President Mary Daly said she expects the central bank to raise rates to somewhere over 5%. Her Atlanta counterpart Raphael Bostic noted that policy makers should hike above 5% by early in the second quarter and then go on hold for “a long time.”

Investors also awaited Thursday’s US CPI report that will come out almost a week after the latest jobs data showed that wage growth has decelerated. The figures will be among the last such readings policy makers will see before their Jan. 31-Feb. 1 gathering.

“In addition to the probability of interest rates remaining high and a possible economic slowdown, any bullishness triggered by slowing inflation may be offset by stocks still-high valuations and overly optimistic earnings expectations,” said Chris Larkin at E*Trade from Morgan Stanley. “It could be a recipe for choppy near-term and long-term trading.”

Concerns about recessions in the US and Europe this year have been countered by renewed optimism over China. The world’s second-largest economy made an abrupt U-turn on strict Covid restrictions in early December and swiftly followed up with other market-friendly changes. Its economy is now forecast to expand by 4.8% this year, according to data compiled by Bloomberg. The MSCI China Index is up roughly 50% since it hit an 11-year low in October. 

Equities in developing nations entered a bull market amid a rally fueled by optimism over China’s reopening and a weakening dollar. The MSCI Emerging Markets Index advanced 2.5% on Monday, taking its gains from an Oct. 24 low to over 20%. 

Key events this week:

• US wholesale inventories, Tuesday
• Fed Chair Jerome Powell among speakers at Riksbank symposium in Stockholm, Tuesday
• World Bank expected to release global economic prospects report, Tuesday
• ECB Governing Council members speak at Euromoney conference in Vienna, Wednesday
• US CPI, initial jobless claims, Thursday
• St Louis Fed President James Bullard at Wisconsin Bankers Association virtual event, Thursday
• Richmond Fed President Thomas Barkin speaks at VBA/VA Chamber, Thursday
• China trade, Friday
• US University of Michigan consumer sentiment, Friday
• Citigroup, JPMorgan Chase, Wells Fargo report earnings, Friday

Some of the main moves in markets:

Stocks

• Hang Seng futures fell 0.2% as of 7:55 a.m. Tokyo time
• S&P/ASX 200 futures fell 0.1%
• The S&P 500 fell 0.1% Monday
• The Nasdaq 100 rose 0.6%

Cryptocurrencies

• Bitcoin rose 1.5% to $17,206.51
• Ether rose 4% to $1,319.87

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.53%
• Australia’a 10-year yield fell one basis point to 3.71%

Commodities

• West Texas Intermediate crude rose 1.4% to $74.82 a barrel
• Spot gold was little changed

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.