- Nikkei flat, slow trade with US on vacation
- Vote cautiously ahead of Fed minutes, US core inflation
- Nervously awaiting policy outlook from new BOJ chief
SYDNEY, Feb. 20 (Reuters) – Asian stocks rose on Monday as a US holiday fueled sluggish trading ahead of minutes from the latest Federal Reserve meeting and a reading on core inflation that could add to the risk of interest rates rising for longer.
Geopolitical tensions were ever present with North Korea firing more missiles and rumors that Russia would step up attacks in Ukraine ahead of the one-year anniversary of the invasion on Friday.
There were reports that the White House was planning new sanctions against Russia, while Secretary of State Antony Blinken on Saturday warned Beijing of the consequences if it provided Moscow with material support, including weapons.
All this led to a cautious start as MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 0.7% after falling 2.2% last week.
The rally was led by Chinese blue chips (.CSI300) holding 1.1% as Beijing held interest rates steady as expected after pumping liquidity into the banking system in recent days.
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Japan’s Nikkei (.N225) was flat, while South Korea (.KS11) added 0.3%. EUROSTOXX 50 futures and FTSE futures both added 0.4%, extending last week’s gains.
S&P 500 futures barely budged, as did Nasdaq futures. The S&P hit a two-week low on Friday as a string of strong US economic news suggested the Fed might have more to do with interest rates, even after a massive 450 basis point rise in 11 months.
It’s the most aggressive Fed tightening in decades and US retail sales are at record highs, unemployment is at a 43-year low, payrolls are up more than 500,000 in January and CPI/PPI inflation is picking up. up again,” noted BofA analysts. “That’s a Fed mission that’s far from over.”
They warned that the S&P 500’s failure to break resistance at 4,200 could lead to a pull back to 3,800 by March 8.
Markets have steadily raised the expected peak for Fed funds to 5.28%, while sharply scaling back rate cuts for later this year and next year.
CORE PCE A RISK
The minutes of the Fed’s final meeting scheduled for Wednesday should add color to the deliberations, though they have been somewhat overtaken by stormy data on January payrolls and retail sales.
The latter means that US personal consumption expenditure (PCE) data expected this Friday will show a 1.3% increase in January, more than recovering from the weakness in the previous two months.
The Fed’s preferred inflation indicator, the core PCE index, is up 0.4%, its biggest increase in five months, while the annual rate may have slowed only slightly to 4.3%.
Goldman Sachs is tipping a 0.55% gain in the core, which would severely test the market’s resilience.
There are also at least five Fed presidents speaking this week for ongoing commentary.
Earnings season continues this week with major retailers Walmart (WMT.N) and Home Depot (HD.N) offering consumer health updates.
Other companies reporting include chip company Nvidia (NVDA.O), COVID-19 vaccine maker Moderna (MRNA.O), and e-commerce storefront eBay (EBAY.O).
The prospect of more rate hikes from the Fed has pushed up Treasury yields and generally supported the dollar, which last week hit a six-week high on a basket of currencies.
The euro stalled at $1.0684 after hitting a six-week low of $1.0613 on Friday, while the dollar was just above a two-month high of the yen at 134.20.
Investors eagerly await Friday’s testimony from the newly appointed head of the Bank of Japan, and his thoughts on the future of yield curve control (YCC) and super-easy monetary policy.
Any hint of an early end to YCC could lead to global interest rate spikes and a rise in the yen, so analysts expect Kazuo Ueda to be careful not to frighten markets.
Higher yields and a firmer dollar hurt gold, which was trading at $1,843 an ounce and not far from a five-week low of $1,807.
Oil prices attempted to recover after falling about 4% last week amid signs of ample supply and concerns about future demand.
Brent rose 58 cents to $83.58 a barrel, while US crude rose 45 cents to $76.79.
Reporting by Wayne Cole; Edited by Shri Navaratnam and Christian Schmollinger
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