Asian stocks mixed as investors worry about Fed rate hikes; Fed may raise rates atleast thrice starting May

The dollar was little changed, while the yen traded near its lowest since January 2017.

The dollar was little changed, while the yen traded near its lowest since January 2017. (File Photo: Reuters)

Stocks in Asia were mixed Wednesday as investors fret about interest rates increases that dragged down U.S. stocks from a record and extended a decline in Treasuries.

Shares in Japan edged higher and they fluctuated in Hong Kong. They slipped in China where equities had their worst start to the new year since 2019. U.S. futures had modest losses. The Nasdaq 100 underperformed amid a selloff in technology shares and the S&P 500 was little changed Tuesday.

Treasuries were steady after yields rose for a second day amid increasing conviction the Federal Reserve will raise rates at least three times beginning in May to counter price pressures. Yields on long maturities also climbed amid heavy supply of new corporate bonds following a year-end lull. 

The dollar was little changed, while the yen traded near its lowest since January 2017.

U.S. December payroll data and minutes from the Fed’s meeting last month may throw more light this week on the potential pace of rate hikes. Minneapolis Fed President Neel Kashkari said he supports two rate increases this year to counter risks posed by inflation.

“Earlier we thought that rate hikes wouldn’t be on the table until mid-2022 but the Fed seems to have worked up a consensus to taper faster and hike sooner rather than later,” Steve Englander, head of global G-10 FX research at Standard Chartered, said in a note. “But we don’t think inflation dynamics will support continued hiking. We suspect the biggest driver of asset markets will be when inflation and Covid fears begin to ebb.”

Data Tuesday showed mixed signs on U.S. inflation. Prices paid by manufacturers in December came in sharply lower than expected. However, figures showing a record U.S. job quit rate added to concerns over wage inflation. 

Meanwhile, North Korea appears to have launched its first ballistic missile in about two months, just days after leader Kim Jong Un indicated that returning to stalled nuclear talks with the U.S. was a low priority for him in the coming year.

Crude oil in New York held gains. OPEC and its allies agreed to revive more halted production as the outlook for global oil markets improved, with demand largely withstanding the new coronavirus variant.

Elsewhere, Bitcoin traded near $46,000. Goldman Sachs Group Inc. predicts $100,000 is possible as the cryptocurrency continues to take market share from gold as a store of value.

What to watch this week:

  • FOMC meeting minutes scheduled for release Wednesday
  • Fed’s Bullard discusses the U.S. economy and monetary policy in an event on Thursday
  • Fed’s Daly discusses monetary policy on a panel Friday
  • ECB’s Schnabel speaks on a panel Saturday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.1% as of 10:25 a.m. in Tokyo. The S&P 500 was little changed
  • Nasdaq 100 contracts fell 0.2%. The Nasdaq 100 fell 1.4%
  • Topix index rose 0.4%
  • Australia’s S&P/ASX 200 Index fell 0.1%
  • Kospi index lost 1%
  • Hang Seng Index was little changed
  • Shanghai Composite Index fell 0.3%

Currencies

  • The Japanese yen traded at 116.12 per dollar
  • The offshore yuan was at 6.3756 per dollar
  • The Bloomberg Dollar Spot Index was little changed Tuesday
  • The euro was at $1.1284

Bonds

  • The yield on 10-year Treasuries held at 1.65%
  • Australia’s 10-year bond yield rose four basis points to 1.78%

Commodities

  • West Texas Intermediate crude was at $77.17 a barrel, up 0.3%
  • Gold was at $1,813.94 an ounce

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