An Asian stock gauge retreated Monday along with US equity futures as the Federal Reserve’s commitment to tighter monetary settings to quell inflation restrained investor sentiment.
(Bloomberg) — An Asian stock gauge retreated Monday along with US equity futures as the Federal Reserve’s commitment to tighter monetary settings to quell inflation restrained investor sentiment.
MSCI Inc.’s Asia-Pacific share index fell for a third day with losses evident in most major markets except for some gains in China, where a move by banks to trim lending rates aided property developers.
S&P 500, Nasdaq 100 and European contracts suffered declines of at least 0.5% and the dollar was at a more than one-month peak, signs of ongoing wariness.
Bonds in Australia and New Zealand dropped and Treasuries either held or extended a selloff from Friday.
A jump in global shares from June’s bear-market lows has begun to cool, weighed down by repeated Fed warnings that interest rates are going higher. Troubling global economic developments, lately including power shortages in a Chinese industrial heartland, are also hanging over investors.
The latest MLIV Pulse survey suggests stocks and bonds are set to tumble once more even though inflation has likely peaked: some 68% of respondents see the most destabilizing era of price pressures in decades eroding corporate margins and sending equities lower.
Key for markets this week is the Fed’s symposium at Jackson Hole, Wyoming. The recent stock bounce has loosened financial conditions, which makes it harder to tackle inflation.
‘Remain Hawkish’
The symposium gives Fed Chair Jerome Powell a platform to reset the market’s expectations for a pivot to slower rate hikes. The latter bets have helped to drive the recent equity rebound but are vulnerable to the possibility of persistently elevated price pressures even as economic growth stumbles.
“It is likely central bankers, including Fed Chair Powell, will remain hawkish in dealing with inflation albeit with a bit of caution creeping in given the emerging economic downturn,” Shane Oliver, head of investment strategy at AMP Services Ltd., wrote in a note.
In China, banks lowered the one-year and five-year loan prime rates on Monday in the slipstream of a decision by the nation’s central bank last week to cut a key policy rate.
China’s Challenges
The Chinese central bank “aims to do some kind of twist in order to supply more longer term credit to the market while at the same time making sure there is no flush liquidity in the interbank market and there is no speculation,” Jing Liu, HSBC chief economist for greater China, said on Bloomberg Television.
The world’s second-largest economy faces mobility curbs amid rising Covid cases and continuing property-sector woes, aside from a power crunch in Sichuan province, a key manufacturing hub.
The Chinese demand outlook is weighing in oil, which sank below $90 a barrel. Traders are monitoring Iran nuclear talks that could lead to more supplies.
What to watch this week:
- US new home sales, S&P Global PMIs, Tuesday
- Fed’s Neel Kashkari speaks at Q&A session, Tuesday
- US durable goods, MBA mortgage applications, pending home sales, Wednesday
- US GDP, initial jobless claims. Thursday
- Fed annual policy symposium in Jackson Hole, Wyoming, Thursday
- ECB’s July minutes, Thursday
- Fed Chair Powell speaks at Jackson Hole, Friday
- US consumer income, PCE deflator, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures lost 0.5% as of 7 a.m. in London. The S&P 500 fell 1.3%
- Nasdaq 100 futures shed 0.6%. The Nasdaq 100 fell 2%
- Japan’s Topix index fell 0.1%
- Australia’s S&P/ASX 200 index was 0.9% lower
- South Korea’s Kospi index declined 1.2%
- Hong Kong’s Hang Seng Index lost 0.2%
- China’s Shanghai Composite Index added 0.5%
- Euro Stoxx 50 futures fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was at $1.0037
- The Japanese yen was at 137.24 per dollar, down 0.2%
- The offshore yuan was at 6.8437 per dollar, down 0.1%
Bonds
- The yield on 10-year Treasuries was steady at 2.97%
- Australia’s 10-year yield rose 12 basis points to 3.53%
Commodities
- West Texas Intermediate crude dropped 1.4% to $89.52 a barrel
- Gold was at $1,744.35 an ounce
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