Asia stocks falter as interest rate hikes, earnings loom

SYDNEY, Jan 30 (Reuters) – Asian shares edged lower on Monday ahead of a week that is sure to see interest rates rise in Europe and the United States, along with U.S. jobs and wages data that could influence how much further they still have to go.

Earnings from a who’s who of tech giants will also test the mettle of Wall Street bulls, who want to propel the Nasdaq to its best January since 2001.

Nor has Asia been sluggish as China’s rapid reopening bolsters the economic outlook, with MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) up 11% in January so far at a nine-month high.

The index fell 0.2% on Monday with mixed markets across the region. Japan’s Nikkei (.N225) was flat, while Taiwan (.TWII) jumped 3.1%.

The Nikkei newspaper reported that Renault ( RENA.PA ) would lower its stake in Nissan ( 7201.T ) to 15%, while the latter would invest in Renault’s electric car business.

Chinese blue chips (.CSI300) climbed 1.1% after returning from vacation. Beijing reported Lunar New Year travel inside China rose 74% from last year, although it was still only half of pre-pandemic levels. read more

S&P 500 futures and Nasdaq futures both fell 0.3%, while EUROSTOXX 50 futures and FTSE futures fell 0.2%.

Investors are confident that the Federal Reserve will raise interest rates by 25 basis points on Wednesday, followed by half-point increases the next day from the Bank of England and the European Central Bank, and any departure from this script will be a real shock.

Equally important will be the guidance on future policy with analysts expecting a hawkish message that inflation has not yet been beaten and more needs to be done. read more

“With US labor markets still tight, core inflation elevated and economic conditions easing, Fed Chair Powell’s tone will be hawkish, stressing that a downgrade to a 25 bp hike does not mean a pause is coming,” said Bruce Kasman, chief economist at JPMorgan, which expects another rise in March.

“We also look for him to continue to push back against market pricing of rate cuts later this year.”

There is a lot of pressure to do given that futures currently have rates peaking at 5.0% in March, only to fall back to 4.5% by the end of the year.

ISLANDS APPLE

Yields on the 10-year note have fallen 33 basis points so far this month to 3.50%, essentially easing financial conditions even as the Fed talks tough about tightening.

These dovish views will also be tested by data on US payrolls, the employment cost index and various ISM surveys.

Figures on EU inflation may be important for whether the ECB signals a half-point interest rate rise for March, or opens the door to a slowdown in the pace of tightening. read more

As for Wall Street’s recent rally, much will depend on earnings from Apple Inc ( AAPL.O ), Amazon.com ( AMZN.O ), Alphabet Inc ( GOOGL.O ) and Meta Platforms ( META.O ), among many others .

“Apple will provide insight into the overall consumer demand story globally and a snapshot of the problems in China’s supply chain that are slowly beginning to subside,” analysts at Wedbush wrote.

“Based on our recent checks of the supply chain in Asia, we believe that demand for iPhone 14 Pro remains stronger than expected,” they added. “Apple will likely cut some costs around the edges, but we don’t expect mass layoffs.”

Market pricing in early Fed easing has weighed on the dollar, which has lost 1.6% so far this month to trade at 101.790 against a basket of major currencies.

The euro is up 1.5% for January at $1.0878 and close to a nine-month high. The dollar has even lost 1.3% on the yen to 129.27 despite the Bank of Japan’s staunch defense of its not-so-easy policy.

The fall in the dollar and yields have been a boon for gold, which is up 5.8% for the month so far at $1,930 an ounce.

China’s rapid reopening is seen as a price windfall for commodities in general, supporting everything from copper to iron ore to oil prices.

The oil market was hesitant on Monday, with Brent off 11 cents to $86.55 a barrel, while US crude fell 3 cents to $79.65.

Reporting by Wayne Cole; Editing by Christopher Cushing

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