Dollar falls, stocks rise as inflation fear eases: markets wrap

The dollar declined while stocks advanced amid a tailwind from easing inflation expectations that has fueled January’s rally in riskier assets.

The greenback fell against both emerging-markets and Group-of-10 currencies on bets that the Federal Reserve will slow the pace of interest-rate hikes. Australia’s dollar strengthened above 70 cents for the first time since August, a reflection of improved appetite for riskier assets.

A benchmark of Asian equities trimmed earlier gains as Hong Kong-listed shares fell. Mainland China equities remained higher. US futures fluctuated after stocks on Wall Street closed at the strongest level in a month on Friday and contracts for Europe climbed.

Japanese markets continued to be driven by speculation of a shift in monetary policy, with the Topix index trading lower as the yen’s rebound weighed on exporters.

Investors are on guard for another surprise from the Bank of Japan when it sets policy on Wednesday. The yen strengthened to levels last seen in May and Japan’s benchmark 10-year bond yield pushed above the top of the BOJ’s ceiling for a second day.

Bitcoin traded above $21,000 following a rebound over the weekend, when it surged amid optimism that it may have bottomed.

Bond yields were steady in Australia and higher in New Zealand. There was no trading in Treasuries, with US financial markets closed for a holiday. The 10-year US yield climbed back to 3.50% on Friday.

Hong Kong-listed technology slid after strong gains in recent months. Investors have been pouring money back into the sector but remain wary of regulatory risks.

The impact of surging Covid infections was also on the minds of traders, but not enough to hold back the Shanghai Shenzhen CSI 300 Index, which jumped more than 1.5%. The World Health Organization has urged China to share more detailed information on the spread of virus after the government’s announcement of almost 60,000 related deaths in a month.

The People’s Bank of China kept the rate of its one-year medium-term lending facility unchanged and added less cash than expected into the banking system before the Lunar New Year holidays. The move is likely to fuel speculation the central bank may use other channels to ensure there’s adequate liquidity.

The offshore yuan was up marginally and the nation’s 10-year bond yield rose to the highest since November 2021.

A host of Fed officials will be speaking this week, providing more clues for investors. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers there including European Central Bank President Christine Lagarde and the International Monetary Fund’s Kristalina Georgieva.

The busy week will also be punctuated by more corporate earnings, such as Wall Street heavyweights Goldman Sachs Group Inc. and Morgan Stanley.

“Everything has been a bit too perfect up until now in the beginning of the year — the warm winter in Europe, inflation coming down a little bit globally,” George Sun, head of global markets for Greater China at BNP Paribas, said in an interview with Bloomberg Television. “Everything should be recessionary at this point, so it doesn’t feel quite right. It feels like there’s a lot more room for the downside if anything disappoints going forward.”

Elsewhere in markets, iron ore headed for the biggest loss since end October after China pledged to tighten supervision on pricing after the metal’s surge in recent months. Oil slid and gold was little changed.

Key events this week:

• Earnings this week are scheduled to include: Charles Schwab, Discover Financial, Goldman Sachs, HDFC Bank, Interactive Brokers, Investor AB, Morgan Stanley, Netflix, Procter & Gamble, Prologis, State Street
• World Economic Forum’s kicks off in Davos, Monday
• US markets closed for Martin Luther King Jr. Day, Monday
• China retail sales, industrial production, GDP, Tuesday
• US Empire State manufacturing survey, Tuesday
• Fed’s John Williams to speak, Tuesday
• Eurozone CPI, Wednesday
• US retail sales, PPI, industrial production, business inventories, MBA mortgage applications, cross-border investment, Wednesday
• Bank of Japan rate decision, Wednesday
• Federal Reserve releases Beige Book, Wednesday
• Fed speakers include Raphael Bostic, Lorie Logan and Patrick Harker, Wednesday
• US housing starts, initial jobless claims, Philadelphia Fed index, Thursday
• ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday
• Fed speakers include Susan Collins and John Williams, Thursday
• Japan CPI, Friday
• China loan prime rates, Friday
• US existing home sales, Friday
• IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 2:54 p.m. in Tokyo. The S&P 500 rose 0.4% Friday
• Nasdaq 100 futures were little changed. The Nasdaq 100 rose 0.7%
• Euro Stoxx 50 futures rose 0.6%
• Japan’s Topix index fell 0.9%
• South Korea’s Kospi index rose 0.6%
• Hong Kong’s Hang Seng Index fell 0.2%
• China’s Shanghai Composite Index rose 1.2%
• Australia’s S&P/ASX 200 Index rose 0.8%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.2% to $1.0854
• The Japanese yen rose 0.2% to 127.65 per dollar
• The offshore yuan was little changed at 6.7126 per dollar

Cryptocurrencies

• Bitcoin rose 1.3% to $21,182.68
• Ether rose 1.4% to $1,574.79

Bonds

• The yield on 10-year Treasuries advanced six basis points to 3.50% on Friday
• Australia’s 10-year bond yield was little changed at to 3.59%

Commodities

• West Texas Intermediate crude fell 0.8% to $79.24 a barrel
• Spot gold was at $1 917.74 an ounce