A man wearing a protective mask walks past an electronic board displaying graphs (above) of the Nikkei Index in front of a brokerage firm in Tokyo, Japan amid the outbreak of the coronavirus disease (COVID-19) amid the outbreak of the coronavirus disease (COVID-19). are displayed. REUTERS/Kim Kyung Hoon
- >Asian equity markets :
- Oil prices slipped over $3 as lockdowns spread in China
- Bonds under pressure from extremely restrictive Fed forecasts
- Yen continues decline as BOJ tries to halt rising yields
- US payrolls star in a busy week for data
SYDNEY – Asian stocks faltered and oil prices slid on Monday as a coronavirus lockdown in Shanghai hurt economic activity, while the yen continued its stomach-churning descent as the Bank of Japan stood in the way of higher yields.
China’s financial hub of 26 million people has urged all businesses to shut down production or let employees work remotely in a nine-day, two-tier lockdown. Continue reading
Spreading restrictions at the world’s largest oil importer sent Brent down $3.39 to $117.26, while US crude fell $3.41 to $110.49.
Risk sentiment was helped by hopes of progress at Russia-Ukraine peace talks, due to take place in Turkey this week, after President Volodymyr Zelenskyy said Ukraine was ready to discuss adopting neutral status as part of an agreement. {nL2N2VU0EH]
Stock action was muted as MSCI’s broadest index of Asia Pacific stocks outside Japan (.MIAPJ0000PUS) was flat. The index is down 2.1% for the month but is well above recent lows.
Chinese blue chips (.CSI300) lost 0.8%. Japan’s Nikkei (.N225) shed 0.4% but is still nearly 6% higher for the month as a falling yen promised to boost exporters’ gains.
S&P 500 stock futures were down 0.3%, while Nasdaq futures were down 0.4%. EUROSTOXX 50 futures gained 0.3% and FTSE futures 0.2%.
Wall Street has so far proved remarkably resilient to a radically more hawkish Federal Reserve. Markets are pricing in eight rate hikes for the remaining six policy meetings this year, taking the funds rate to 2.50-2.75%.
Even that outlook isn’t aggressive enough for some. Citi last week forecast a tightening of 275 basis points this year, including a half-point hike in May, June, July and September.
“We expect the Fed to continue hiking into 2023, reaching a target range of 3.5% to 3.75% for interest rates,” Citi analysts wrote. “Risks to the final policy rate remain on the upside given the upside risk to inflation.”
This week’s key data event will be US jobs on Friday, when another solid rise of 475k is expected and the unemployment rate hits a new post-pandemic low of 3.7%. Also due are a series of global manufacturing surveys and US and EU inflation readings.
“The US data will help shape expectations on whether the tightening financial conditions are having an impact on the broader economy,” analysts at NatWest Markets said.
10-year Treasury yields rose 33 basis points last week and are up a staggering 71 basis points to 2.53% over the month, sending US mortgage rates sharply higher.
“The next big theme will be mounting fears of a recession as the Fed moves into a slowdown in growth, potentially supporting a peak in yields this summer,” NatWest warned.
In the FX markets, the Japanese yen was the biggest loser as policymakers there keep yields near zero and sky-high commodity prices send its import bill skyrocketing.
The Bank of Japan reinforced its super-loose policy on Monday, offering to buy as many bonds as needed to keep 10-year yields below 0.25%.
The dollar hit a fresh six-year high of 123.16 yen, giving it a monthly gain of 6.9%. Likewise, the resource-rich Australian dollar is up more than 10% to 92.44 yen.
Even the otherwise ailing euro is up 4% this month to 134.56 against the yen. The single currency is down about 2.3% against the dollar over the same period but is trading at $1.0954, well above the recent two-year low of $1.0804.
The yen’s collapse has kept the US Dollar Index at 99.098 for the month up 2.5%.
In commodity markets, gold slipped to $1,947 an ounce, although it was still up about 2% for the month.
Editing by Jacqueline Wong