As investors braced themselves for U.S. inflation data that may shake up the outlook for interest rates internationally and accelerate or reverse the current jump in bond yields, Asian markets fell and the currency gained on Monday.
The fourth airborne object to be shot down this month by the American air force occurred close to the Canadian border, adding to the sense of geopolitical intrigue.
Officials have not confirmed whether it resembled the massive white Chinese balloon that was shot down earlier this month.
In any case, it gave investors another reason to exercise caution, as MSCI’s largest index of Asia-Pacific shares outside of Japan was down 0.7%, following a 2.2% loss the previous week.
South Korea’s stock market dropped 0.7%, and the Nikkei in Japan sank 1.0%. Chinese blue chips increased 0.6%, helped by positive bank lending data.
FTSE futures were unchanged, while EUROSTOXX 50 futures were down 0.1%. Nasdaq futures declined by 0.5%, while S&P 500 futures fell by 0.4%.
This week’s U.S. consumer price and retail sales statistics might well influence the direction of assets in the short term, with much depending on whether inflation slowed down in January.
According to the median predictions, consumer prices will increase by 0.4% for the month overall, while sales will increase by 1.6%.
Upside risks are possible, provided The CPI was revised higher in December and November, according to a reanalysis of seasonal components published last week. As a result, core inflation increased from 3.1% to 4.3% on a three-month annualised basis.
A larger CPI bias may be caused by changes to the weightings for housing expenses and used car prices.
Head of economic analysis at JPMorgan (NYSE: JPM), Bruce Kasman, anticipates sales to increase 2.2% and core CPI to rise 0.5%, confirming the message of resilience from the strong January payroll data.
According to Kasman, “labor markets in developed markets have tightened in recent months, contrary to our expectations of relaxation.”
The most recent information strengthens the belief that a recession will eventually be needed to return inflation to central bank comfort levels and that we are not on a path towards a smooth landing.
Markets have already dramatically increased the likelihood of more Federal Reserve tightening, with rates now expected to peak at roughly 5.15%, with decreases occurring later and more gradually.
Additionally, there is a full schedule of Fed officials speaking this week to offer a prompt response to the data.
After increasing 21 basis points last week, 10-year Treasury rates are at five-week highs of 3.75%, while two-year yields reached 4.51%.
This change contributed to the stabilisation of the dollar, particularly in comparison to the euro, which fell 1.1% last week and continued its decline on Monday, reaching a five-week low of $1.0660. That was far lower than its $1.0987 peak from early February.
On news that the Japanese government was likely to name scholar Kazuo Ueda as the next governor of the Bank of Japan, the dollar also gained ground against the yen.
The unexpected information generated rumours that the BOJ’s ultra-lax policies might soon stop, but Ueda later stated that it was appropriate to retain the existing position.
After recovering from a low of 129.80 yen on Friday, the dollar was last up over 0.6% at 132.15 yen.
Gold prices were stalled around $1,859 per ounce compared to a top of $1,959 in early February due to the rise in yields and the currency. [GOL/]
Oil prices experienced new selling after surging on Friday after Russia announced it would reduce its daily output by 5% in March as a result of price limitations placed by the West on Russian oil and oil-related products. [O/R]
U.S. crude dropped 79 cents to $78.93, and Brent dropped 77 cents to $85.62 per barrel.