(Bloomberg) — Shares and equity futures retreated as investors positioned themselves for an action-packed week, including the release of US consumer price data that may confirm the inflation battle isn’t over, dashing hopes of a Federal Reserve rate pivot.
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The negative sentiment reverberated across major indexes in Asia, with a regional equity benchmark headed for its lowest close in more than a month. Contracts for US and Europe stocks were in the red. The S&P 500 ended last week 1.1% lower, while the tech-heavy Nasdaq 100 slipped 2.1%, the worst weekly performance this year for the two indexes. Bonds fell as well, with the Bloomberg Global Aggregate index dropping 1.6%, the worst weekly run since September.
Yields on Australian and New Zealand government bonds advanced following a selloff in US government debt Friday that pushed up the 10-year Treasury yield by seven basis points. Treasuries were rangebound on Monday and the dollar strengthened against all currencies in the Group-of-10 basket.
Investors are reassessing how high US interest rates will rise this year, with inflation and jobs data likely to still come in hot later this week. That has fueled bets for the Fed rate to peak at 5.2% in July, up from less than 5% a month ago.
“The next CPI report has become binary — markets will either breathe a huge sigh of relief, or risk aversion will accelerate,” said Eric Robertsen, global head of research and chief strategist for Standard Chartered Plc. “The more the FOMC is compelled to extend the rate-hiking cycle and postpone rate cuts, the more likely it is that the US will experience a hard landing, requiring more aggressive rate cuts later.”
Read More: Fed’s Harker Favors Rates Above 5%, Says Soft-Landing Odds Grow
Philadelphia Fed President Patrick Harker was the latest central banker to unveil expectations for rates to climb above 5% after a drum-beat of commentary last week that included a prediction from Minneapolis Fed President Neel Kashkari that the level would reach 5.4%.
Dubai-based Ark Capital Management sees the possibility of a correction in the S&P 500 to the lower 3,000 levels in the next few months on persistent Fed hawkishness. “At some point in time the market discounting of Fed hikes in 2023 will come off the table as we look toward 2024 and that could actually have a negative impact in equity markets,” Saed Abukarsh, its chief portfolio manager, said on Bloomberg Television.
The yen weakened past 132 per dollar after whipsawing Friday following news reports that Kazuo Ueda would be picked to become the Bank of Japan’s next governor. Investors initially interpreted the decision as a potentially hawkish choice. Those gains were trimmed after Ueda spoke to reporters and said the BOJ’s stimulus should stay in place. Japan’s government is set to officially announce the nomination of the new BOJ governor on Tuesday.
For the time being, Ueda seems to be more hawkish than the current dovish Governor Haruhiko Kuroda, according to Yujiro Goto, head of foreign-exchange strategy at Nomura Holdings Inc. “BOJ’s policy stance will be at least more neutral going forward and the fundamental is also pointing that monetary policy normalization is necessary,” he said on Bloomberg Television. “That will be still positive for Japanese yen in the medium term.”
Singapore on Monday reported 2022 economic growth at 3.6%, compared with 3.8% previously seen. The city state reaffirmed its growth forecast for this year at between 0.5% to 2.5% as authorities focus on combating stubborn core inflation and slowing demand. The Singaporean dollar slipped.
Traders are also keeping a keen eye on geopolitical developments after the Pentagon shot down an unidentified object that it tracked over Michigan, according to US officials familiar with the matter. This was the fourth time in eight days a balloon or high-flying craft has been shot down over the US or Canada.
Elsewhere, oil fell as Russia’s plan to curb supply in retaliation for western sanctions was offset by concerns about slowing global growth. Gold edged lower.
Key events:
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India CPI, Fed Governor Michelle Bowman speaks at the American Bankers Association Monday
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US CPI, UK jobless claims, Eurozone GDP, New York Fed President John Williams gives the keynote speech at New York Bankers Association event Tuesday
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Japan’s new BOJ governor nomination Tuesday
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US retail sales, UK CPI Wednesday
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US jobless claims, Australia unemployment, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday
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France CPI, Russia GDP Friday
Some of the main moves in markets as of 6:45 a.m. London time:
Stocks
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S&P 500 futures fell 0.3%. The S&P 500 rose 0.2%
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Nasdaq 100 futures fell 0.4%. The Nasdaq 100 fell 0.6%
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Euro Stoxx 50 futures were unchanged
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Japan’s Topix index fell 0.5%
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South Korea’s Kospi index fell 0.7%
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Hong Kong’s Hang Seng Index fell 0.5%
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China’s Shanghai Composite Index rose 0.7%
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Australia’s S&P/ASX 200 Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro was little changed at $1.0677
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The Japanese yen fell 0.6% to 132.15 per dollar
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The offshore yuan fell 0.2% to 6.8371 per dollar
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The British pound was little changed at $1.2056
Cryptocurrencies
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Bitcoin rose 0.4% to $21,833.85
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Ether rose 0.6% to $1,519.69
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson and Youkyung Lee.
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Source: finance.yahoo.com