© Reuters. FILE PHOTO: A passerby wearing a face mask walks past a stock quote board in Tokyo, Japan February 24, 2022. REUTERS/Issei Kato
By Wayne Cole
SYDNEY (Reuters) – Share markets in Asia faltered on Monday as investors braced for a week of 13 central bank meetings that is sure to see borrowing costs rise across the board. globally and some risk of hyper-scaling in the United States.
Markets were fully priced for a 75 basis point gain from the Federal Reserve, with futures showing an 18% chance of a full percentage point.
They also suggest a 50-50 chance ratio could soar as high as 5.0-5.25% as the Fed is forced to put the economy into recession to contain inflation.
“How high will the end-of-fund rate be?” Jan Hatzius, chief economist at Goldman Sachs (NYSE:) said.
“Our answer is high enough to create a tightening in financial conditions that causes enough drag on activity to maintain a solid growth trajectory below potential.”
He expected the Fed to raise 75 basis points on Wednesday, followed by two half-point cuts in November and December.
Also important will be the Fed members’ “dot plot” rate forecasts, which are likely to be hawkish, putting deposit rates at 4-4.25% by year-end and even even higher next year.
That risk sent two-year Treasury yields up 30 basis points just last week, hitting their highest since 2007 at 3.92%, thus making the stock look more expensive than and dragged down nearly 5% for the week.
On Monday, holidays in Japan and the United Kingdom got off to a slow start and rose 0.1%, while Nasdaq futures were flat.
EUROSTOXX 50 futures contracts added 0.4%, while futures closed.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3 percent, after losing nearly 3 percent last week.
closed, but index implied futures were at 27,400 versus Friday’s close of 27,567.
China’s central bank went its own way and cut the repo rate by 10 basis points to support its ailing economy, sending blue-chip stocks up 0.3%.
A RUSH TO TIGHTEN
Fund manager BofA’s latest survey shows that global equity allocations are at an all-time low.
“But with both U.S. yields and unemployment at 4-5%, bad sentiment isn’t enough to keep the S&P from making new year lows,” BofA analysts warned. BofA’s analysis warns.
“Our proprietary set of 38 growth indicators portray a dire outlook for global growth, but we are looking at one of the strongest periods of tightening in history, with 85% of banks global central banks are in tightening mode.”
Most banks meeting this week – from Switzerland to South Africa – are expected to rise, with markets divided over whether the Bank of England will raise 50 or 75 basis points.
Jonathan Petersen, senior market economist at Capital Economics, said: “The latest UK retail sales data support our view that the economy is already in recession.
“So even though the pound hits a multi-decade low against the dollar this week, the relative strength of the US economy suggests the pound will remain under pressure.”
The pound is stuck at $1.1436 after hitting a 37-year low of $1.1351 last week, [GBP/]
One exception is the Bank of Japan, which so far shows no sign of abandoning its easy yield-curve policy despite the yen’s sharp slide.
The dollar spiked to 143.08 yen on Monday, after retreating from a recent 24-year high of 14.4.99 in the face of increasingly harsh intervention warnings from major policymakers. Japanese books.
The euro is holding at $1.1009, having bounced from recent lows of $0.9865 thanks to increasingly hawkish comments from the European Central Bank.
Against a basket of currencies, the dollar was steady at 109.68, just down from a two-decade high of 110.79 touched earlier this month.
The upswing in the dollar and yields is a drag on gold, which is hovering at $1,672 an ounce after hitting a low not seen since April 2020 last week. [GOL/]
Oil prices attempted a recovery on Monday, having fallen about 20% so far this quarter amid concerns about demand as global growth slows. [O/R]
rose 92 cents to $92.27, while up 76 cents to $85.87 a barrel.