- Nikkei flat, US trade slow on holiday
- Mood cautious ahead of Fed minutes, US core inflation
- Nervously waiting for new BOJ chief’s political outlook
SYDNEY, Feb 20 (Portal) – Asian stocks edged higher on Monday as a US bank holiday ensured slow trading ahead of minutes from the Federal Reserve’s latest meeting and a core inflation reading that could raise the risk that the Interest rates rise longer.
Geopolitical tensions have been ever-present as North Korea fired more missiles and talk of Russia stepping up attacks in Ukraine ahead of the one-year anniversary of the invasion on Friday.
There were reports that the White House was planning new sanctions against Russia, while Secretary of State Antony Blinken on Saturday warned Beijing of consequences if it provides material assistance, including arms, to Moscow.
All of this made for a cautious start, with MSCI’s broadest index of Asia Pacific equities outside Japan (.MIAPJ0000PUS) up 0.7% after falling 2.2% last week.
The rebound was led by Chinese blue chips (.CSI300), which rallied 1.1% as Beijing held interest rates steady as expected after already pumping liquidity into the banking system over the past few days.
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Japan’s Nikkei (.N225) was flat, while South Korea (.KS11) was up 0.3%. EUROSTOXX 50 futures and FTSE futures were both up 0.4%, extending last week’s gains.
S&P 500 futures barely moved, as did Nasdaq futures. The S&P hit a two-week low on Friday as a string of strong US economic news suggested the Fed could potentially have more to do with interest rates, even after raising a whopping 450 basis points in 11 months.
“It’s the Fed’s most aggressive tightening in decades and US retail sales are at all-time highs; unemployment at a 43-year low; payrolls are up over 500k in January and CPI/PPI inflation is accelerating again,” BofA analysts noted. “This is a Fed mission that is far from being accomplished.”
They warned that the failure of the S&P 500 to break the resistance at 4,200 could trigger a drop to 3,800 by March 8th.
Markets have steadily raised the expected peak for Fed funds to 5.28% while rate cuts for later this year and next have been scaled back sharply.
CORE NPCE AT RISK
Minutes from the Fed’s last meeting, due Wednesday, should add color to the deliberations, although somewhat replaced by barnstormed numbers on January payrolls and retail sales.
The latter means that US consumer spending (PCE) figures, due this Friday, are expected to show a 1.3% increase in January, more than recovering from the weakness of the previous two months.
The Fed’s favorite indicator of inflation, the core PCE index, is expected to rise 0.4%, its biggest gain in five months, while the annual pace may have slowed only a fraction to 4.3%.
Goldman Sachs is predicting a core gain of 0.55%, which would test the market’s resilience.
There are also at least five Fed Presidents speaking this week for ongoing comment.
Earnings season continues this week, with major retailers Walmart (WMT.N) and Home Depot (HD.N) set to offer updates on consumer health.
Other firms reporting include chip company Nvidia (NVDA.O), COVID-19 vaccine maker Moderna (MRNA.O), and e-commerce storefront eBay (EBAY.O).
The prospect of more Fed hikes has lifted Treasury yields and generally supported the dollar, which hit a six-week high in a basket of currencies last week.
The euro stalled at $1.0684 after hitting a 6-week low of $1.0613 on Friday, while the dollar was just below a 2-month high at 134.20 against the yen.
Investors are eagerly awaiting Friday’s statement from the newly appointed Bank of Japan governor and his thoughts on the future of yield curve control (YCC) and super-loose monetary policy.
Any hint of a premature end to YCC could send global yields higher and the yen soaring, so analysts believe Kazuo Ueda will be careful not to spook markets.
Higher yields and a firmer dollar did not bode well for gold, which held at $1,843 an ounce and was not far from a five-week low of $1,807.
Oil prices have been trying to recover after falling about 4% last week on signs of ample supply and concerns about future demand.
Brent rose 58 cents to $83.58 a barrel, while US crude rose 45 cents to $76.79.
Reporting by Wayne Cole; Edited by Shri Navaratnam and Christian Schmollinger
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