The dollar advanced and stocks extended declines in Asia at the start of a pivotal week for markets, with interest rate decisions due from the Federal Reserve, the European Central Bank and a host of their peers.
The greenback rose versus all of its Group-of-10 counterparts while and index of Asian equities fell, ending a two-day winning streak. The rapid spread of Covid cases in China added to concern, with Hong Kong’s the Hang Seng Index down about 2%.
US stock futures fell in Asia following a late-day slide on Wall Street on Friday, with the S&P 500 closing near the day’s lows. The Dow Jones Industrial Average notched its worst weekly drop since September.
The Treasury 10-year yield eased slightly after a jump on Friday that took it to just below 3.6%. Yields for government bonds in Australia and New Zealand rose.
Recession fears have resurfaced ahead of the Fed decision Wednesday, when policymakers are expected to downshift to a 50 basis points hike. Yet officials including Chair Jerome Powell have also stressed that borrowing costs will need to remain restrictive for some time, putting them at odds with some investors looking for rate cuts later in 2023.
The ECB follows on Thursday, with consensus estimates for it to also deliver a 50 basis points hike. Markets also have to contend with decisions this week from the Bank of England and monetary authorities in Mexico, Norway, the Philippines, Switzerland and Taiwan.
While the tumult of this year has a gauge of global stocks headed for its biggest annual loss since 2008, the world’s biggest investors predict that stocks will see low double-digit gains in 2023. Seventy one percent of respondents in a Bloomberg News survey expect equities to rise, versus 19% forecasting declines. For those seeing gains, the average response was a 10% return.
The world’s top fund managers are also mostly bullish on Chinese stocks for 2023. About 60% of respondents in a Bloomberg News survey recommended buying the country’s stocks, while 31% said they are a sell.
More immediately this week though, all eyes will be on Tuesday’s US consumer inflation data in the run-up to the Fed meeting. It’s forecast that prices, while much too high, continued to decelerate.
Chris Weston, head of research at Pepperstone Group Ltd. wrote in a note that “should we see US core CPI above 6.3%, then the US dollar should rally hard, and equity should find decent sellers.” A reading below 6% “would be a surprise and the US dollar bears should find comfort in that,” he said.
“Easing financial conditions and expected China stimulus could mean the Fed continues to chase the inflation train from the back into the next year as well,” strategists at Saxo Capital Markets wrote in a note.
Elsewhere, US natural gas futures extended an advance into a fourth session on an expected surge in heating demand amid a powerful Pacific storm. Oil climbed, rebounding after the biggest weekly loss since April, and gold fell.
Key events this week:
- US CPI, Tuesday
- FOMC rate decision and Fed Chair news conference, Wednesday
- China medium-term lending, property investment, retail sales, industrial production, surveyed jobless, Thursday
- ECB rate decision and ECB President Lagarde briefing, Thursday
- Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
- US cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
- Eurozone S&P Global PMI, CPI, Friday
Some of the main moves in markets:
- S&P 500 futures fell about 0.1% as of 1:23 p.m. Tokyo time. The S&P 500 fell 0.7% Friday
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 fell 0.6% on Friday
- Japan’s Topix index fell 0.2%
- South Korea’s Kospi index fell 0.6%
- Hong Kong’s Hang Seng Index fell 1.9%
- China’s Shanghai Composite Index fell 0.6%
- Australia’s S&P/ASX 200 Index fell 0.4%
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to $1.0515
- The Japanese yen fell 0.3% to 136.91 per dollar
- The offshore yuan fell 0.3% to 6.9844 per dollar
- Bitcoin fell 1.1% to $16,930.5
- Ether fell 1.5% to $1,245.7
- The yield on 10-year Treasuries declined two basis points to 3.56%
- Australia’s 10-year yield advanced seven basis points to 3.37%
- West Texas Intermediate crude rose 0.8% to $71.57 a barrel
- Spot gold fell 0.5% to $1 787.49 an ounce
This story was produced with the assistance of Bloomberg Automation.
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