(Bloomberg) — Asian stocks looked set for a cautious start Monday after a Federal Reserve official flagged the possibility of sharper interest-rate increases and data from China signaled slower economic growth.
Futures for Japan, Australia and Hong Kong pointed to muted opens. Hong Kong is among markets with a truncated session for the Lunar New Year holiday, while China and South Korea are closed. Data over the weekend showed mounting Chinese economic woes as factory output and services moderated.
The Fed’s hawkish pivot to fight inflation and an uneven corporate earnings season so far have stoked intense volatility. U.S. stocks last week saw three of the biggest intraday reversals of the decade before ending little changed.
Fed Atlanta branch president Raphael Bostic told the Financial Times that a 50 basis-point rate increase or hikes at each policy meeting this year are options if needed to fight inflation. But he said three quarter-point moves starting March are the most likely 2022 outcome. The dollar was mixed early Monday.
Bond investors are also braced for more swings as the Fed and other central banks reduce pandemic-era stimulus. Shorter-maturity Treasuries sensitive to rate expectations slid last week and the yield curve flattened.
Earnings reports from bellwethers like Alphabet Inc. and Meta Platforms Inc. as well as monetary policy decisions from the European Central Bank and Bank of England will help color the market mood in the days ahead. Some strategists argue global stocks are due for a steadier period, even if only temporarily, after shedding more than 6% in January.
The equity selloff “marks a long overdue correction rather than the start of a bear market,” BCA Research Inc. analysts including Peter Berezin and Melanie Kermadjian wrote in a note. “Stocks often suffer a period of indigestion when bond yields rise suddenly, but usually bounce back as long as yields do not move into economically restrictive territory,” they added.
Goldman Sachs Group Inc.’s economists now predict the Fed will lift its near zero benchmark by 25 basis points five times this year rather than on four occasions. That would take it to 1.25%-1.5% by the end of the year.
Elsewhere, tension between the U.S. and Russia continues over the Russian troop buildup near Ukraine’s border. U.S. lawmakers are close to finalizing the language for a sanctions bill.
In the cryptocurrency sector, Bitcoin slipped back to trade below $38,000.
For more market analysis, read our MLIV blog.
What to watch this week:
- Earnings are due from Alphabet, Amazon, Exxon Mobil, Ford Motor, Meta Platforms, Qualcomm, Sony, Spotify, UBS Group
- Eurozone GDP growth data, Monday
- San Francisco Fed President Mary Daly due to speak at event, Monday
- Reserve Bank of Australia rate decision, Tuesday
- Manufacturing PMIs, including eurozone, Tuesday
- OPEC+ meeting on output, Wednesday
- Eurozone CPI, Wednesday
- Bank of England, European Central Bank rate decisions, Thursday
- Fed Board of Governors confirmation hearing, Thursday
- U.S. factory orders, initial jobless claims, durable goods, Thursday
- U.S. payrolls report for January, Friday
- Winter Olympics kick off in China, Russia’s President Vladimir Putin due to attend opening ceremony, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 2.4%
- The Nasdaq 100 rose 3.2%
- Nikkei 225 futures were little changed
- S&P/ASX 200 futures fell 0.2%
- Hang Seng futures rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was at $1.1143
- The Japanese yen was at 115.27 per dollar
- The offshore yuan was at 6.3680 per dollar
Bonds
- The yield on 10-year Treasuries declined three basis points to 1.77%
Commodities
- West Texas Intermediate crude was at $86.82 a barrel
- Gold was at $1,791.53 an ounce
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