(Bloomberg) — Asian stocks face a choppy open 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.
Australian equities climbed, while futures for Japan slipped and Hong Kong’s were steady. U.S. contracts pushed higher. The S&P 500 on Wednesday 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.
The FOMC meeting “played out more hawkishly than we expected,” Steven Englander, global head of G-10 FX research at Standard Chartered Bank, wrote in a note “The FOMC statement was largely as anticipated, but Fed Chair Powell emphasized upside risks to inflation, pointing to a steady pace of policy withdrawal.”
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. Gold held a drop. Bitcoin traded around $36,800.
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.
Meanwhile, Pershing Square Capital Management is now among streaming giant Netflix Inc.’s top 20 shareholders, Bill Ackman said in a tweet on Wednesday.
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
- S&P 500 futures rose 0.4% as of 8:09 a.m. in Tokyo. The S&P 500 fell 0.2%
- Nasdaq 100 futures climbed 0.8%. The Nasdaq 100 rose 0.2%
- Nikkei 225 futures fell 0.7%
- Australia’s S&P/ASX 200 index jumped 1%
- 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 114.75 per dollar
- The offshore yuan was at 6.3382 per dollar
Bonds
- The yield on 10-year Treasuries advanced nine basis points to 1.86%
- Australia’s 10-year yield rose 10 basis points to 2.05%
Commodities
- West Texas Intermediate crude was at $87.36 a barrel
- Gold was at $1,819.55 an ounce
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