Asian stock markets started the week with a cautious move following the possibility of an interest rate hike in the United Kingdom (UK) and the United States (US) NFP jobs data to be published on Friday.
Moreover, oil prices continued in an upward trend as a result of concerns over inflation.
The MSCI Asia-Pacific broad index outside Japan fell 0.1% in a slower trading session following the Chinese New Year holiday celebrations.
Japan’s Nikkei slipped 0.3% as industrial output and retail sales data posted results below forecasts while the S&P 500 futures and Nasdaq Composite futures fell 0.3% from a rebound on Friday.
The Bank of England (BOE) is expected to raise interest rates further this week, further following a trend of policy tightening around the world while the European Central Bank (ECB) is expected to stick to its stance that inflation will subside over time.
The market is now forecasting 5 increases from the Federal Reserve (Fed) this year to 1.25%. However, Bank of America (BofA) analysts think the matter is not hawkish enough.
Ethan Harris, chief economist of BofA noted that the market has reduced its forecast against the Fed at the beginning of the last 2 upside cycles and it will happen again.
He added that the Fed is expected to start raising rates by 25bp at each remaining meeting this year with a total of 7 hikes and 4 more hikes next year. It indirectly brings the terminal rate to 2.75-3.00% by the end of 2023.
The Fed’s hawkish round has seen US 10 -year treasury yields jump 27 basis points at 1.78%, making bonds relatively more attractive than equities and especially growth stocks with prolonged valuations.
The dollar index, which measures a number of other currencies, rose 1.7% to its highest level since July 2020 at 97.441.
The euro slipped 1.7% last week to its lowest level since June 2020 at $ 1.1151 while the safe-haven Yen rose 1.3% at 115.27 yen.
Meanwhile, higher yields have dampened gold’s movement to remain stuck at $ 1,789, a 2.4%decline.
The Russia-Ukraine crisis continued to impact oil prices as it approached a 7-year high after rising for 6 consecutive weeks with Bret oil prices rising 94 cents at $ 90.97 a barrel while U.S. crude oil prices added 98 cents at $ 87.71 a barrel.
