- Fed saw 25bp up this week, ECB and BOE up 50bp
- Tech giants lead numerous earnings results
- China shares as holiday travel increases
SYDNEY, Jan. 30 (Reuters) – Asian stocks turned cautious on Monday ahead of a week in which interest rates in Europe and the United States are sure to rise, along with US jobs and wage data that could affect how much further they have to go .
Earnings from a who’s who of tech giants will also test the mettle of Wall Street bulls as they look to propel the Nasdaq to its best January since 2001.
Asia hasn’t been sluggish either, as China’s rapid reopening bolsters the economic outlook, with MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rising 11% year-to-date in January to its all-time high nine months.
The index was down 0.2% on Monday with mixed markets across the region. Japan’s Nikkei (.N225) fell, while Taiwan (.TWII) rose 3.1%.
The Nikkei newspaper reported that Renault (RENA.PA) would reduce its stake in Nissan (7201.T) to 15%, while the latter would invest in Renault’s EV business.
Chinese blue chips (.CSI300) were up 1.1% after returning from vacation. Beijing reported that travel during the Lunar New Year within China increased 74% from last year, though it was still only half its pre-pandemic level. read more
S&P 500 futures and Nasdaq futures both fell 0.3%, while EUROSTOXX 50 futures and FTSE futures fell 0.2%.
Investors are confident that the Federal Reserve will raise interest rates by 25 basis points on Wednesday, followed the day after by half-point increases by the Bank of England and the European Central Bank, and any deviation from that script would be a real shock.
Just as important will be the guidance for future policy, with analysts expecting an aggressive message that inflation is not yet beaten and more needs to be done. read more
With US labor markets still tight, core inflation high and financial conditions easing, Fed Chair Powell’s tone will be aggressive, emphasizing that a pullback to a 25 bps hike does not mean a pause. said Bruce Kasman, chief economist at JPMorgan, who expects another rise in March.
“We also expect him to continue to resist market prices of interest rate cuts later this year.”
There is a lot of work to be done as futures rates currently peak at 5.0% in March, before falling back to 4.5% by the end of the year.
APPLE IN THE EYE
Yields on 10-year bonds are down 33 basis points so far this month to 3.50%, effectively easing financial conditions even as the Fed talks loudly about tightening.
That bland outlook will also be tested by data on US payrolls, the employment cost index and various ISM surveys.
EU inflation data could be important for whether the ECB signals a half-point rate hike for March, or opens the door to a slowdown in the pace of tightening. read more
As for the recent Wall Street rally, much will depend on the earnings of Apple Inc (AAPL.O), Amazon.com (AMZN.O), Alphabet Inc (GOOGL.O), and Meta Platforms (META.O), among others .
“Apple will provide a glimpse into the overall demand story for consumers worldwide and a snapshot of China’s supply chain issues that are slowly beginning to subside,” Wedbush analysts wrote.
“Based on our recent supply chain audits in Asia, we believe demand for iPhone 14 Pro is holding up stronger than expected,” she added. “Apple will probably cut some costs, but we don’t expect mass layoffs.”
The market price of the Fed’s early easing has been a burden to the dollar, which has lost 1.6% so far this month to 101,790 against a basket of major currencies.
The euro is up 1.5% in January to $1.0878 and is just off its nine-month high. The dollar even lost 1.3% against the yen to 129.27, despite the Bank of Japan’s stubborn defense against its very easy policy.
The fall in the dollar and yields has been a boon for gold, which is up 5.8% for the month so far to $1,930 an ounce.
China’s rapid reopening is seen as a windfall for commodities in general, supporting everything from copper to iron ore to oil prices.
The oil market swayed Monday, with Brent down 11 cents at $86.55 a barrel, while US crude fell 3 cents to $79.65.
Reporting by Wayne Cole; Edited by Christopher Cushing
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