Morning offer: Reality bites | Reuters

27 February (Reuters) – A look at the day ahead at Asian markets from Jamie McGeever.

After a sobering end to the week on Wall Street, a selloff is likely to break across Asian markets on Monday as the reality of “longer” US interest rates finally dawns on investors.

Data on consumer spending, the labor market and business activity suggest that the US economy is in much better shape than many thought, and last week’s final blow came in the form of unexpectedly strong inflation data.

Implied peak Fed rate approaching 5.50% – does anyone still think 6% is fantasy? – Yields on US and other bonds are rising and stocks are feeling the heat.

The MSCI World index fell 2.7% last week, its biggest weekly drop since September, while Asian equities ex-Japan fell almost as much for a fourth straight weekly loss and the strongest since October.

Tech stocks are in the firing line more than most. The Hang Seng tech index is down 17% over the past month, hit by higher rates and tighter financial conditions, as well as profit-taking after an explosive 77% rebound from its October low.

A consequence of the market’s rethinking of the Fed has been the strong rise in bond yields and the dollar. Many Asian currencies are being pushed back to their recent lows, increasing inflationary pressures across the region and making dollar-denominated debt more expensive.

The Chinese yuan is back at $7.00/$, the yen and won are at their lowest levels this year – domestic Japanese and South Korean monetary policy factors also play a role here – and the Indian rupee is close from an all-time low around 83.00 per dollar.

Investors’ nerves are being tested even more by rising tensions between the United States and China, including over the war between Russia and Ukraine.

White House national security adviser Jake Sullivan said on Sunday that China has failed to provide deadly aid that would help Russia, a decision Washington has warned would have dire consequences.

This week’s Asian economic data includes Purchasing Managers Index reports from China and other countries, fourth-quarter GDP data from Australia and India, inflation data from Australia, Indonesia and the Japanese capital, and the latest snapshots of retail sales from Japan, Australia, Singapore and New Zealand.

Here are three key developments that could give markets more direction on Monday:

– Trade in Hong Kong (January)

– Thailand trade (January)

– New Zealand retail sales (Q4)

By Jamie McGeever; Edited by Diane Craft

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