- The Fed increased by 25 basis points this week, the ECB and the BOE by 50 basis points
- Tech giants top earnings results
- China splits shares as holiday travel surges
SYDNEY, Jan 30 (Reuters) – Asian stocks turned wary on Monday ahead of a week that is certain to see interest rates rise in Europe and the United States, as well as U.S. jobs and payroll data. which could influence the time they still have to go.
Earnings from a who’s who of the tech giants will also test the mettle of Wall Street bulls, which are looking to propel the Nasdaq to its best January since 2001.
Asia was not left out either, as China’s rapid reopening bolsters the economic outlook, with MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) up 11% in January so far to a nine-month high.
The index was down 0.2% on Monday with mixed markets in the region. The Japanese Nikkei (.N225) was flat, while Taiwan (.TWII) jumped 3.1%.
The Nikkei newspaper reported that Renault (RENA.PA) was to reduce its stake in Nissan (7201.T) to 15%, while the latter would invest in Renault’s EV business.
Chinese blue chips (.CSI300) climbed 1.1% after returning from the holidays. Beijing reported that Lunar New Year travel within China jumped 74% from a year ago, although this was still only half of pre-pandemic levels. Read more
S&P 500 and Nasdaq futures both fell 0.3%, while EUROSTOXX 50 and FTSE futures fell 0.2%.
Investors are confident that the Federal Reserve will raise rates by 25 basis points on Wednesday, followed the next day by half-point hikes by the Bank of England and the European Central Bank, and any deviation from that scenario would be a real shock.
Equally important will be indications of future policy, with analysts expecting a hawkish message of unbeaten inflation and much more to do. Read more
“With US labor markets still tight, underlying inflation elevated and financial conditions easing, Fed Chairman Powell’s tone will be hawkish, stressing that a move to a 25 basis point hike will not doesn’t mean a pause is imminent,” said Bruce Kasman, chief economist at JPMorgan, who expects a further rise in March.
“We also expect him to continue to struggle against market prices or rate cuts later this year.”
There’s a lot to do given that futures currently have rates peaking at 5.0% in March, falling back to 4.5% by the end of the year.
Yields on 10-year bonds have fallen 33 basis points so far this month to 3.50%, essentially easing financial conditions even as the Fed talks tough on tightening.
This dovish outlook will also be tested by US payroll data, the cost of employment index and various ISM surveys.
EU inflation figures could be important in determining whether the ECB signals a half-point rate hike for March or opens the door to a slower pace of tightening. Read more
As for the recent Wall Street rally, much will hinge on the earnings of Apple Inc (AAPL.O), Amazon.com (AMZN.O), Alphabet Inc (GOOGL.O) and Meta Platforms (META.O), among many others. ‘others.
“Apple will provide insight into the evolution of aggregate consumer demand around the world and insight into supply chain issues in China that are slowly beginning to ease,” the Wedbush analysts wrote.
“Based on our recent supply chain audits in Asia, we believe demand for iPhone 14 Pro is holding up more firmly than expected,” they added. “Apple will likely cut some costs around the edges, but we don’t expect massive layoffs.”
Market prices from the Fed’s early easing have been a drag on the dollar, which has fallen 1.6% so far this month to settle at 101.790 against a basket of major currencies.
The euro is up 1.5% in January at $1.0878 and just off a nine-month high. The dollar even lost 1.3% against the yen at 129.27 despite the Bank of Japan’s stubborn defense of its ultra-easy policies.
The lower dollar and yields have been a boon for gold, which is up 5.8% for the month so far at $1,930 an ounce.
China’s rapid reopening was seen as a boon to commodities in general, supporting everything from copper to iron ore to oil prices.
The oil market was hesitant on Monday, with Brent losing 11 cents to $86.55 a barrel, while U.S. crude fell 3 cents to $79.65.
Reporting by Wayne Cole; Editing by Christopher Cushing
Our standards: The Thomson Reuters Trust Principles.