(Bloomberg) — Asian shares fell on Tuesday after a rally in U.S. stocks evaporated as Federal Reserve officials indicated the central bank would have to raise interest rates by more than 5% before pausing and holding off.
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In Hong Kong on Monday, Chinese shares edged lower after a 2 percent rise, while Japan’s Topix index rose after reopening following public holidays. Benchmarks in Australia and Southeast Asia also fell. Contracts on the S&P 500 slipped after the index failed to hold above the key 3,900 level, shedding nearly 1.5% of the advance.
Traders who had been hoping for faster growth as global inflation eased saw the reality on Monday. Atlanta’s Rafael Bostic suggested policymakers expect rates to rise more than 5% early in the second quarter and stay there “for a long time.”
That will keep them waiting for Thursday’s slow-moving U.S. inflation report, nearly a week after the latest jobs data showed a slowdown in wage growth. Figures will be among the last readings policymakers will see before the Jan. 31-Feb. 1 gathering.
“Expect some profit-taking ahead of the CPI print later this week. That’s the next big event for global markets. I think most traders will be looking pretty much into the economic print,” said Craig Johnson, chief technical research analyst at Piper Sandler & Co.
The Bloomberg Dollar Spot Index was little changed, with the greenback joining its Group-10 peers on Tuesday. The 10-year Treasury yield was held at 3.54%. Japan’s 10-year yield was 0.5%, the ceiling for the Bank of Japan’s yield control policy.
“With interest rates likely to remain high and an economic slowdown likely, any downside to slowing inflation could be offset by still-high valuations and excellent earnings prospects,” Chris Larkin from Morgan Stanley said on E*Trade. “It can be a recipe for time and long-term business.”
This year, fears of recession in the US and Europe have been offset by renewed optimism about China. The world’s second-largest economy abruptly reversed strict Covid restrictions in early December and other market-friendly changes quickly followed.
According to data compiled by Bloomberg, China’s economy is predicted to grow by 4.8% this year. Still, inflation worsened in the fourth quarter, with inflation likely to slow later this year even as the economy picks up, according to China Beige Book International.
Nitin Chanduka, strategist at Bloomberg Intelligence, said: “China expectations are improving, but economic data may not provide confirmation until the country’s ongoing Covid-19 outbreak takes its toll.”
Emerging market equities entered a bull market, supported by China’s reopening and a weaker dollar. MSCI’s emerging markets index rose 2.5% on Monday, taking its gains from the October 24 low to 20%.
Key events this week:
US Wholesale Goods, Tuesday
Fed Chairman Jerome Powell was among the speakers at the Riksbank Symposium in Stockholm on Tuesday.
The World Bank is expected to release a report on world economic prospects on Tuesday
ECB Governing Council members will speak at the Euromoney conference in Vienna on Wednesday
US CPI, Initial Jobless Claims, Thursday
St. Louis Federation President James Bullard at the Wisconsin Bankers Association virtual event, Thursday.
Richmond Federation President Thomas Barkin spoke at the VBA/VA Chamber Thursday.
China Business, Friday
US Michigan Consumer Sentiment, Friday
Citigroup, JPMorgan Chase, Wells Fargo report earnings, Friday
This week’s MLIVE heart rate survey:
Some of the major moves in the markets as of 12:37 PM Tokyo time:
The S&P/ASX 200 fell 0.3%
The Hang Seng fell 0.6%
Japanese topics increased by 0.5%
The Shanghai composite fell 0.2%
S&P 500 futures fell 0.3%; The S&P was down 0.1% on Monday.
West Texas Intermediate crude fell 0.2 percent to $74.45 a barrel.
Spot gold was little changed at 1,873.18 oz.
This story was produced with the help of Bloomberg Automation.
–With help from Abhishek Vishnoi.
(An earlier version of this story corrected the spelling of the Atlanta Federation’s name.)
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