(Bloomberg) — Asian stocks may come under pressure Thursday after Federal Reserve Chair Jerome Powell signaled a March interest-rate liftoff and left open the possibility of hikes at each policy meeting. Treasuries slid, the dollar jumped and U.S. shares were mixed.
Futures for Japan and Australia slipped, while Hong Kong’s were steady. The S&P 500 wiped out a gain of over 2% to close down and the technology-heavy Nasdaq 100 erased almost all of a 3.5% rise.
Treasuries tumbled, particularly shorter maturities, and the gap between five- and 30-year yields was around the narrowest since early 2019. Global bonds now face losses, with the New Zealand 10-year yield hitting the highest since 2018. The dollar rallied. The yen and commodity-linked currencies were lower.
Powell reinforced the Fed’s determination to quell the highest inflation in a generation amid a robust economic recovery from the pandemic. The central bank also said it expects the process of balance-sheet reduction will commence after it has begun raising borrowing costs.
The looming Fed tightening has spurred a selloff in stocks and bonds this year as investors adjust to receding pandemic-era stimulus and question whether that poses a risk to economic momentum. Money-market traders boosted bets and foresee about 113 basis points in hikes in 2022, up from about 100 basis points before the meeting adjourned.
“Not surprisingly, markets took these comments as a signal that tighter policy was coming, and we’ve seen a predictable response,” wrote Matt Weller, global head of research at Forex.com, referring to Powell’s remarks. He added Powell made clear the Fed was willing to start raising rates “aggressively.”
Rate Outlook
Swaps traders are now pricing in around 30 basis points of tightening at the next central bank gathering in March. The Fed typically moves rates in increments of 25 basis points, so that kind of pricing suggests that at least a standard hike is certain and there’s around a one-in-five possibility of a 50 basis point increase.
Elsewhere, Brent oil surged above $90 for the first time in seven years before paring the advance. The spike in bond yields sent gold lower. Bitcoin gave up a rally to trade around $36,400.
Among corporate highlights, Tesla Inc. profit beat estimates but the shares whipsawed in extended trading after the company said supply-chain troubles will limit output. Intel Corp. fell on a disappointing profit forecast.
On the geopolitical front, the U.S. delivered a written response to Russia on the crisis in Ukraine, with Secretary of State Antony Blinken saying it sets out “a serious diplomatic path forward” even though it rejected some of the Kremlin’s key demands.
What to watch this week:
- South African Reserve Bank rate decision Thursday.
- U.S. initial jobless claims, durable goods, GDP Thursday.
- Euro zone economic confidence, consumer confidence Friday.
- U.S. consumer income, University of Michigan consumer sentiment Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.2%
- The Nasdaq 100 rose 0.2%
- Nikkei 225 futures fell 0.7%
- S&P/ASX 200 futures slipped 0.4%
- Hang Seng futures were steady
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro was at $1.1240 after dropping 0.5%
- The Japanese yen was at 114.65 per dollar after falling fell 0.7%
Bonds
- The yield on 10-year Treasuries advanced nine basis points to 1.86%
- Australia’s 10-year yield rose 11 basis points to 2.06%
Commodities
- West Texas Intermediate crude rose 2% to $87.35 a barrel
- Gold fell 1.6% to $1,818.76 an ounce
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