Asian stocks tumble, dollar firms ahead of central bank rate hikes

  • Japan’s Nikkei down 0.2%; Hong Kong shares down 2.2%
  • Dollar Drifts Higher; European futures point to a lower open
  • US CPI Tuesday, Fed meeting Wednesday
  • ECB and BOE rate decisions on Thursday

SYDNEY, Dec 12 (Reuters) – Asian stocks tumbled and the dollar strengthened on Monday at the start of a turbulent week as markets awaited a flurry of interest rate decisions from the U.S. Federal Reserve , the European Central Bank and others.

The caution is expected to trickle down to European markets, with pan-regional Euro Stoxx 50 futures down 0.5%, German DAX futures down 0.5% and FTSE futures down 0. .2%.

S&P 500 and Nasdaq futures fell 0.1%.

In Asia, the broadest MSCI index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) fell 1.2%, erasing nearly all of the previous week’s gains stemming from optimism that China is finally opening up its economy with the dismantling of its zero COVID policy.

Japan’s Nikkei (.N225) down 0.2%.

Chinese bluechips fell 0.9%, while Hong Kong’s Hang Seng Index (.HSI) fell 2.2% as investors’ attention shifted from the crippling brakes of COVID-19 to the surge in infections now disrupting the economy.

On Friday, Wall Street fell, Treasury yields rose and the dollar pared its earlier losses.

A US Consumer Price Index (CPI) report on Tuesday will set the tone for markets for the week. Economists expect core annual inflation to decline to 6.1% in November from a 6.3% rise seen the previous month.

The risk could be on the upside, after data on Friday showed producer prices rose faster than expected, fueling concerns that the CPI report could signal inflation is sticky and interest rates may need to stay higher for longer.

“A warmer CPI – say 6.4% (and higher) and a set of hawkish Fed points and a Powell statement could see funds calling it a day for 2022 – risk is bleeding into 2023 and funds are buying back USD shorts,” said Chris Weston, research manager at Pepperstone.

“It would be a big surprise if we don’t see the Fed back to a 50bp hike… We also want to understand if Jay Powell opens the door to a slowdown to a 25bp rate hike from February – again , while in line with market prices, one could consider that we are closer to the end of the up cycle and a modest USD negative.”

The Federal Reserve is expected to raise rates by 50 basis points on Wednesday at its last meeting of 2022, but the focus will also be on the central bank’s updated economic projections and the Fed Chairman’s press conference, Jerome Powell.

Kevin Cummins, chief U.S. economist at NatWest, said any surprises in the CPI report were unlikely to push the Fed past a 50 basis point rate hike, although it would play a bigger role. important in the policy statement and the tone of Powell’s press conference. .

“As is often the case, the updated point chart and terminal (peak) rate estimates will be even more critical to the political outlook than short-term action this week – a theme on which the President Powell will focus in his prepared remarks and his press conference,” Cummins said.

Besides the Fed, the ECB and Bank of England are also expected to announce interest rate hikes on Thursday, both likely to rise by 50 basis points, as policymakers continue to curb growth to rein in inflation. .

In currency markets, the US dollar rose 0.1% against a basket of currencies at 105.17, although it was not too far off the five-month low of 104.1 a year ago. one week.

The British pound fell 0.3% to $1.223, while the Australian dollar also fell 0.3% to $0.6759.

Treasury yields were largely flat on Monday. The yield on the benchmark 10-year Treasury held steady at 3.5600%, versus 3.5670% in the US. The two-year yield touched 4.338%, up slightly from its US close of 4.330%.

In the oil market, prices rose on uncertainty surrounding the restart of a key pipeline supplying the United States and Russia’s threat to cut production in retaliation for Western price caps on its exports. .

Brent crude futures rose 0.6% to $76.58 a barrel, while U.S. West Texas Intermediate crude was at $71.62 a barrel, up 0.8%.

Spot gold was down 0.6% at $1,785.78 an ounce.

Editing by Lincoln Feast, Bradley Perrett and Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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