Asian markets set for cautious start after Fed hikes
On Monday, the stock market in Asia looks set for a cautious start following a jump in Treasury yields and the dollar on the back of expectations of further aggressive Federal Reserve interest-rate hikes to tame elevated inflation.
S&P 500 and Nasdaq 100 contracts declined while futures fell for Japan, Australia and Hong Kong. Global shares completed a third straight advance last week in a rebound from bear market lows.
The US jobs data on Friday added to the case for more Fed monetary tightening. Treasury yields were higher and the dollar went up as a result of that. 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.
Concerns about the demand outlook hindered the price of crude oil below $90 a barrel. In September, traders are seeing greater odds of another 75 basis-point hike by the Fed, part of a global wave of rate increases. The US inflation data this week could influence the policy path and cause more market swings. Price pressures may be topping out, but it is not clear if they will stay high.
If investors projections for a peak in the fed funds rate top 4% after inflation data, we could see risk rolling over, with volatility rising, defensives outperforming and better shorting opportunities kicking in, said Chris Weston, Pepperstone Group Ltd. head of research.
The latest comments from Fed officials left a question mark over wagers on a policy pivot toward reducing borrowing costs next year.
San Francisco Fed President Mary Daly said the US central bank is not done yet in bringing down price pressures. The Fed should keep considering large hikes similar to the 75 basis-point increase approved last month, even though inflation declines, according to Governor Michelle Bowman.
In the US 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 that China's trade surplus rose to a new record. The nation's economic rebound faces potential global headwinds as well as domestic Covid flareups and property sector woes.
Investors continue to monitor the tension over Taiwan, and said it won't succumb to pressure from China after days of military drills in the air and seas surrounding the island.
Some of the biggest moves in markets are:
The offshore yuan was at 6.7640 per dollar.
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