Asian stocks and the dollar seek direction as investors focus on Fed policy

Pedestrians wearing face masks walk near an overpass with an electronic board showing stock information, following an outbreak of the coronavirus disease (COVID-19), at Lujiazui financial district in Shanghai, China March 17, 2020. REUTERS/Aly Song

On Tuesday, Asian markets and the dollar battled to find direction as investors awaited Federal Reserve Chair Jerome Powell's testimony before the Senate Banking Committee, searching for clues about the timing of expected policy tightening.

Powell is seeking re-election to a second four-year term as Federal Reserve chairman. His appearance before the committee will be followed by a hearing on Thursday with vice-chair nominee Lael Brainard. continue reading

EUROSTOXX 50 futures increased by 0.6 percent, while FTSE futures increased by 0.3 percent, implying a solid start to European stock markets.

Global markets have been on edge due to inflation concerns, but Hou Wey Fook, a chief investment officer of DBS Bank, stated that he does not believe inflation has reached a "runaway situation."

"There are a lot of shorter term drivers like the global supply chain and economies re-opening," Hou explained.

"Once we have some normalisation of those things, inflation should kind of come back down to more reasonable levels and the Fed will probably not be too aggressive," he said.

MSCI's broadest index of Asia-Pacific shares outside Japan increased by 0.2 percent following a 0.3 percent decline.

On Monday, the Nikkei index dipped 0.9 percent as trading resumed following a holiday. Australian markets fell 0.8 percent, Taiwanese stocks gained 0.3 percent, while Seoul stocks were stable.

Hong Kong's stock index increased by 0.1 percent, while China's 300 indexes fell by 0.8 percent.

The December consumer inflation figures in the United States will be revealed on Wednesday. The headline CPI is expected to come in at a scorching 7% year on year, bolstering the case for interest rates to rise sooner rather than later.

Futures on the S&P 500 and Nasdaq were little moved.

The Fed signaled in December that it might tighten policy more quickly than expected in response, with a rate move possible as early as March.

That was before it became evident how quickly the Omicron variant would spread, with this week's hearings providing Powell and Brainard with their first opportunity to discuss how the current outbreak of the disease has altered their view. continue reading

"We continue to believe that launch in March is becoming more feasible. How these issues are resolved will very certainly have an effect on post-liftoff rate hikes "Nomura's economists stated in a study that they were referring to the United States' monetary policy.

"In particular, we believe comments regarding earlier runoff and less aggressive rate hikes support our view that the Fed will slow the pace of rate hikes to two per year in 2023."

Asian stocks have performed relatively well thus far this year. MSCI's core index has remained stable, with advances in Indian and Hong Kong equities offset by declines in Japanese and Chinese markets.

US stocks took a beating in the first week of the year as the Fed signaled that it would tighten policy more quickly to combat inflation, and then data revealed a robust US labor market.

The Dow Jones Industrial Average fell 0.45 percent on Monday, while the S&P 500 lost 0.14 percent. The Nasdaq Composite rose 0.05 percent as technology firms launched a late rally.

On Tuesday, the dollar index, which compares the greenback to six major currencies, hovered near 95.832.

It reached a more than 16-month high of 96.938 on Nov. 24 amid growing Fed hawkishness but has since been stuck between that level and 95.544, which was reached less than a week later.

In US trade, yields on 10-year US Treasury notes reached a high of 1.8080 percent, the highest level since January 2020. Later in the day, the yield fell to 1.7640.

Tuesday saw an increase in oil prices following two days of declines. Brent crude futures increased 0.5 percent to $81.3 a barrel, recovering from a 1% loss the previous session.

Publish : 2022-01-11 19:41:00

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