Asia stocks steady amid bond turmoil; dollar rises: markets wrap

Stocks in Asia traded cautiously Monday as investors brace for bond-market volatility and stimulus withdrawal. The dollar rose.

Shares in Hong Kong advanced as technology stocks rebounded. They fell in South Korea, while China edged higher. US futures fluctuated after the S&P 500 posted the worst start to a year since 2016 as expectations of faster-than-anticipated US interest-rate increases roiled bond markets and sparked a rotation out of high-growth equities. Japan is shut for a holiday Monday. European futures gained.

Treasury futures extend losses after posting the biggest one-week decline since February 2021. Australia’s 10-year bonds tumbled. Treasury yields climbed across the board last week in a selloff sparked by Federal Reserve minutes signaling a willingness to start hiking rates as soon as March. Cash Treasuries won’t trade in Asia because of the Japan holiday.

US inflation data this week will be keenly watched as concerns grow the Fed is behind the curve in tackling elevated price pressures. US employers added fewer staff than expected in December, but wages rose more than forecast, boosting the Fed’s case to tighten liquidity.

Markets face increasing volatility as investors grapple with how to reprice assets as the pandemic liquidity that helped drive equities to record highs is withdrawn. Goldman Sachs Group Inc. now expects the Fed to raise rates four times this year and start its balance sheet runoff process in July, if not earlier.

“The US Fed needs to tread carefully in removing policy accommodation – it should not happen too fast otherwise it risks a disruption to the rebound in economic growth and could lead to another ‘taper tantrum,’” Diana Mousina, senior economic in the multi-asset group at AMP Capital, said in a note. She sees more volatility this year from inflation, Fed rate hikes and geopolitics as well as US mid-term elections.

Brace for Volatility

Comments from a host of Fed speakers this week will be scrutinized for clues on the central bank’s schedule to trim accommodative monetary policy.

“Inflation is the biggest concern and that’s why you have to brace yourself,” Al Lord, Lexerd Capital Management founder and chief executive officer, said on Bloomberg Television. “Rates are going higher, there is no doubt here. The Fed is behind the curve. We certainly have to brace ourselves for volatility here.”

At the same time, the spread of omicron is posing a fresh test for economic activity. China is seeing its first omicron cases in the community, and as the Lunar New Year festivities approach, governments in Taiwan and Vietnam prepared to intensify curbs.

Elsewhere, Bitcoin traded around $42 000 as cryptocurrencies continue to struggle. Crude oil steadied around $79 a barrel after recording the biggest weekly gain in a month.

Here are some key events this week:

• Atlanta Fed President Raphael Bostic discusses the economic outlook Monday
• Fed Chair Jerome Powell’s confirmation hearing in the Senate Banking Committee. Tuesday
• Kansas City Fed President Esther George, St. Louis Fed President James Bullard discuss economy and monetary policy Tuesday
• Wednesday: EIA crude oil inventory report; China PPI, CPI
• US CPI Wednesday
• US Senate Banking Committee hearing for Lael Brainard, nominated as Fed vice-chair. Thursday
• Richmond Fed President Thomas Barkin; Philadelphia Fed President Patrick Harker; Chicago Fed President Charles Evans on economy and monetary policy. Thursday
• Bank of Korea policy decision, briefing Friday
• Earnings 4Q: Wells Fargo, Citigroup, JPMorgan. Friday
• New York Fed President John Williams speaks Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 5:45 a.m. in London. The S&P 500 fell 0.4%
• Nasdaq 100 futures rose 0.3%. The Nasdaq 100 fell 1.1%
• Australia’s S&P/ASX 200 Index fell 0.1%
• South Korea’s Kospi index slipped 0.9%
• Hang Seng Index rose 1%
• Shanghai Composite Index rose 0.3%
• Euro Stoxx 50 futures rose 0.3%

Currencies

• The Japanese yen was at 115.80 per dollar, down 0.2%
• The offshore yuan was at 6.3796 per dollar
• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was at $1.1335

Bonds

• The yield on 10-year Treasuries advanced four basis points to 1.76% Friday
• Australia’s 10-year bond yield rose six basis points to 1.92%

Commodities

• West Texas Intermediate crude was at $79 a barrel
• Gold was at $1 791.92 an ounce, down 0.3%