Asia believes in Fed liftoff, China data undervalued

People wearing protective masks are reflected on an electronic board displaying Japanese stock prices outside a brokerage firm in Tokyo
FILE PHOTO: People wearing protective masks, amid the coronavirus disease (COVID-19) outbreak, are reflected on an electronic board showing Japanese stock prices outside a brokerage in Tokyo, Japan, October 5, 2021. REUTERS / Kim Kyung-Hoon

December 15, 2021

By Wayne Cole

SYDNEY (Reuters) – Asian markets were flat on Wednesday as the world awaited news that the US Federal Reserve would stop buying assets and start raising interest rates, possibly putting pressure on other peers.

Futures contracts had their prices finally taper off in March and rose to 0.25% in May or June for the first time, with interest rates approaching 0.75% year-end.

BofA’s latest survey of fund managers found them in favor of ending the tapering in April and only doubling it by 2022, leaving them vulnerable to hawkish prospects.

Also very important will be the final destination for the rate as markets are currently pricing in a peak of only 1.5-1.75%, which may not even be the peak of inflation.

“Basically, there is an implied assumption that all the Fed has to do is press on with the funds offered falling by just 150bps, and the economy,” said Alan Ruskin, macro strategist at Deutsche Bank. economy will slow down enough to break the inflationary cycle.”

“However, we have never had a cyclical top where the real rate is not above zero, which means that market expectations are too low and possibly too low.”

If Fed members agree and map out a much higher high, it would challenge the lofty valuations of stocks and the low yields that the Treasury offers. Right now, the bond is implying that cash yields will average only 1.8% over the next 30 years.

The rapid spread of the Omicron variant is an additional complication that could make the Fed less hawkish, though recently officials have expressed more concern about the persistence of inflation than the pandemic.

Whatever the Fed’s decision, it will put hurdles on the EU, UK and Japan’s central banks when they meet this week, while adding pressure for further tightening in markets. emerging school.

So many potential pitfalls worried investors, and the MSCI index of Asia-Pacific shares, the broadest outside of Japan, fell 0.1% in sluggish trade.

Japan’s Nikkei was flat on both sides and South Korea lost 0.2%.

China’s blue-chips were flat as retail sales missed forecasts with a 3.9% gain while industrial output came in at a firmer-than-expected 3.6%.

50 EUROSTOXX futures were up 0.2%, while FTSE futures were flat. Nasdaq and S&P 500 futures held steady, after falling overnight. [.N]

Treasury yields were slightly higher after US producer price inflation expectations spiked overnight.

The 10-year yield rose to 1.44%, but remains low from a recent peak of 1.693%. The yield curve continues to flatten as investors bet an earlier Fed tightening will lead to slower inflation in the long run.

The near-term bullish outlook has supported the US dollar, especially against the euro and yen, where monetary policy is expected to lag.

The only coin left is at $1.1263, not far from the recent bottom of $1.1184. The dollar is solid at 113.71 yen and near resistance at 113.95.

The dollar index holds firm at 96,497, with bulls eyeing the November peak of 96,938. [FRX/]

The risk of an increase in the cash rate is a burden on gold, which offers no fixed returns, and keeps it out of the $1,772 per ounce level. [GOL/]

Oil prices fell after the International Energy Agency (IEA) said the spread of the Omicron coronavirus variant would dampen a recovery in global fuel demand. [O/R]

Brent fell 53 cents to $73.17 a barrel, while US crude lost 60 cents to $70.13 a barrel.

(Edited by Sam Holmes & Shri Navaratnam) Asia believes in Fed liftoff, China data undervalued

Bobby Allyn

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