(Bloomberg) — Asian stocks were mixed and U.S. equity futures slipped Monday after a Federal Reserve official flagged the possibility of sharper interest-rate increases and Chinese data signaled slower economic growth.
Shares rose in Japan and fluctuated in Australia, while S&P 500 and Nasdaq 100 contracts edged lower. China and South Korea are shut for the Lunar New Year holiday. Hong Kong’s session is truncated.
The Fed’s hawkish pivot to fight inflation and an uneven corporate earnings season have contributed to 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 to fight inflation. But he said three quarter-point moves starting March are the most likely 2022 outcome. Bostic doesn’t vote on policy this year.
The dollar held recent gains. Shorter-maturity Treasuries sensitive to the rate outlook declined and the yield curve flattened. Bond investors are braced for more swings as the Fed and other central banks curb pandemic-era stimulus.
Monetary-policy decisions from the European Central Bank and Bank of England will help shape the market mood in the days ahead, as will profit reports from the likes of Alphabet Inc. and Meta Platforms Inc.
Some strategists argue global stocks are due for a steadier period, even if only temporarily, after shedding more than 6% in January. In the futures market, for instance, some speculative S&P 500 bets are the most bullish since 2018.
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.
Fizzling Bubbles
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.
In China, the economy continued to slow at the start of the year, with manufacturing output slipping and Covid outbreaks hitting consumer spending.
Meanwhile, crude oil climbed and gold extended a retreat. In the cryptocurrency sector, Bitcoin was steady at around $38,000, nursing a drop of some 18% since the start of 2022.
Various speculative bubbles are deflating without significantly affecting financial-market functioning or adversely impacting the economy, Ed Yardeni, president of Yardeni Research, wrote in a note. That reduces “the chances of a recession and a bear market in the S&P 500,” he said.
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.
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
- Euro zone 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 euro zone, Tuesday
- OPEC+ meeting on output, Wednesday
- Euro zone 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
- S&P 500 futures fell 0.3% as of 9:23 a.m. in Tokyo. The S&P 500 rose 2.4%
- Nasdaq 100 futures declined 0.3%. The Nasdaq 100 rose 3.2%
- Japan’s Topix index rose 0.2%
- Australia’s S&P/ASX 200 index fell 0.1%
- Hang Seng futures rose 0.3% earlier
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was at $1.1150
- The Japanese yen was at 115.35 per dollar
- The offshore yuan was at 6.3666 per dollar
Bonds
- The yield on 10-year Treasuries rose two basis points to 1.79%
- Australia’s 10-year bond yield fell one basis point to 1.93%
Commodities
- West Texas Intermediate crude rose 1.1% to $87.78 a barrel
- Gold was at $1,789.19 an ounce, down 0.1%
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