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Asia markets to consolidate on interest rate fears, treasuries drop

01 Jun , 2022   By : Kanchan Joshi


Asia markets to consolidate on interest rate fears, treasuries drop

 Stocks in Asia look set to kick off June lower after ending a month marked by intense volatility as fears of aggressive monetary tightening to fight inflation mounted. Treasury yields and the dollar jumped.


Futures fell in Japan, Australia and Hong Kong. US contracts inched higher in early Asia trading after the S&P 500 retreated, ending May virtually flat. The Nasdaq 100 also pulled back, falling for a fourth month in five. 


Chinese stocks listed in the US posted their first monthly gain since October after easing lockdown measures raised hopes that economic activity will pick up.


Treasuries extended a decline, pushing 10-year yields up about 10 basis points as traders raised bets on Federal Reserve interest-rate hikes. Swaps show traders have almost fully priced in two half-point rate increases in June and July, with even odds of a third such hike in September. Adding to the inflation worries, crude oil rose about 10% in May and was up early in Asia Wednesday.


Concerns that central-bank rate hikes may induce a recession are keeping investors guessing about the outlook for the economy as rising food and energy costs squeeze consumers. Euro-zone consumer prices jumped 8.1% to a record from a year earlier in May. 


“It’s times like these when investors need a crystal ball," wrote LPL Financial strategists Jeff Buchbinder and Ryan Detrick. “We fully acknowledge how tough it is to see the bull case for stocks right now, and a retest of recent lows is certainly possible, but this week we lay out the bull case for the second half of the year. It starts with inflation."


President Joe Biden used a rare meeting with Federal Reserve Chair Jerome Powell to declare that he’s respecting the central bank’s independence - while simultaneously shifting responsibility for taming decades-high inflation ahead of the November midterms. The meeting came ahead of US payroll numbers Friday. 


How will markets be affected by the Fed’s quantitative tightening? QT officially starts Wednesday and is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.


Here are some key events to watch this week:

• The Federal Reserve is set to start shrinking its $8.9 trillion balance sheet Wednesday

• The Fed releases its Beige Book report on regional economic conditions Wednesday

• New York Fed President John Williams, St. Louis Fed President James Bullard speak at separate events Wednesday

• OPEC virtual meeting Wednesday

• Cleveland Fed President Loretta Mester discusses the economic outlook Thursday

• US May employment report Friday

• The UN’s Food and Agriculture Organization releases its monthly food price index at a time of maximum concern     about global supplies on Friday


Some of the main moves in markets:


Stocks

• S&P 500 futures rose 0.1% as of 7:05 a.m. in Tokyo. The S&P 500 fell 0.6%

• Nasdaq 100 futures rose 0.2%. The Nasdaq 100 fell 0.3%

• Nikkei 225 futures fell 0.2%

• Australia’s S&P/ASX 200 Index futures fell 0.4%

• Hang Seng Index futures fell 1.2%


Currencies

• The Bloomberg Dollar Spot Index rose 0.4%

• The Japanese was at 128.66 per dollar

• The offshore yuan was at 6.6792 per dollar

• The euro was at $1.0734


Bonds

The yield on 10-year Treasuries advanced 11 basis points to 2.84%


Commodities

West Texas Intermediate crude rose 0.6% to $115.32 a barrel

Gold was at $1,837.27 an ounce.


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