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Shares, bonds gear up for high US inflation, hawkish Fed




Monitors showing stock index prices and the Japanese yen against the US dollar are seen after the New Year’s ceremony marking the opening of trading in 2022 on the Tokyo Stock Exchange (TSE), amid the coronavirus pandemic (COVID-19), in Tokyo, Japan January 4, 2022 REUTERS / Issei Kato

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  • Asian stock markets:
  • China shares flat, S&P futures stable
  • Bond yields remain high ahead of the US CPI report
  • Core inflation is seen to rise again, cementing the Fed increase

SYDNEY, Jan. 10 (Reuters) – Major stock markets were subdued on Monday as investors counted down to another US inflation reading that may well set the seal on an early rise in interest rates from the Federal Reserve, raising bond yields and punishing technology stocks.

The explosion in coronavirus cases globally also threatens to put pressure on consumer consumption and growth, just as the Fed is considering shutting down liquidity sticks, tough timing for markets that rely on endless cheap money.

This led to cautious trading in S&P 500 futures up 0.1% and Nasdaq futures up 0.1%. EUROSTOXX 50 futures and FTSE futures both rose 0.2%.

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MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) increased by 0.2%, while South Korea (.KS11) lost 1.0%.

Chinese blue chips (.CSI300) changed little as recent policy easing was balanced by persistent concerns over the real estate sector. read more

Analysts fear that the US consumer price report on Wednesday will show that core inflation climbs to its highest in decades with 5.4% and will start raising interest rates as early as March.

While the wage figure for December missed forecasts, the fall in the unemployment rate to only 3.9% and the strength of wages indicated that the economy was short of workers.

“This was in line with the Fed’s evolving view that the labor market is approaching or already has maximum employment with wage pressure building up,” said analysts at NatWest Markets.

“This should add to speculation about a March increase, and we have lowered our expectations that the Fed’s repeal will take place in March instead of June.”

A number of Fed officials will be out to present their final thoughts this week, including Chairman Jerome Powell and Gov. Lael Brainard attending confirmation hearings.

Markets changed rapidly to reflect futures risk, suggesting a greater than 70% chance of an increase to 0.25% in March and at least two more increases by the end of the year.

Technology and growth stocks fell as investors switched to banks and energy companies, while bonds were beaten.

Yields on 10-year US government bonds were close to peaks last seen in early 2020 at 1.765%, after shooting up 25 basis points last week in their biggest move since the end of 2019. The next chart target is the range of 1.95 / 1, 97%. US

“We believe that the rise in long-term government interest rates must continue,” said Nicholas Farr, an economist at Capital Economics.

“Markets may still underestimate how much the federal funds rate will rise in the next few years, so our forecast is that the 10-year rate will increase by around 50 bp to, to 2.25%, by the end of 2023.”

The Fed’s hawk shift has tended to be in favor of the US dollar, although it ran into profit-taking on Friday after the wage report failed to meet market expectations.

The dollar index was flat at 95.764, after falling 0.5% on Friday, but has support at 95.568.

The euro jumped to $ 1.1354, leaving it near the top of the recent $ 1.1184 / 1.1382 trading area. The Japanese yen had a break from the last bear to stand at 115.64, when the dollar faded from last week’s peak at 116.34.

In commodity markets, gold was a shade firmer at $ 1,795 per ounce, but below the January high of $ 1,831.

Oil prices remained stable, after climbing 5% last week, helped in part by supply disruptions from the unrest in Kazakhstan and disruptions in Libya.

Brent added 7 cents to $ 81.82 a barrel, while U.S. crude oil remained unchanged at $ 78.90.

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Editing Shri Navaratnam

Our standards: Thomson Reuters Trust Principles.



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