SYDNEY, Aug 22 — Asian shares got off to a rocky start today while the dollar remained in demand amid concerns most major central banks are committed to raising interest rates no matter the risks to growth.
Federal Reserve Chair Jerome Powell headlines a host of policy makers at Jackson Hole later in the week and risks are he will not meet investor hopes for a dovish pivot on policy.
“We expect a reminder that more tightening is needed and there is still a lot of progress to be done on inflation, but no explicit commitment to a specific rate hike action for September,” said Jan Nevruzi, an analyst at NatWest Markets.
“For markets, a bland delivery like that could be underwhelming.” Futures are fully priced for another hike in September with the only question being whether it will be 50 or 75 basis points, while rates are seen up at 3.5 per cent-3.75 per cent by year end.
A Reuters poll of economists forecast the Fed will raise rates by 50 basis points in September with the risks skewed towards a higher peak.
One exception to the tightening trend is China where the central bank is expected to trim some key lending rates today by between 10 and 15 basis points.
Unease over China’s economy tipped the yuan to a three-month low last week while pressuring stocks across the region. Early today, MSCI’s broadest index of Asia-Pacific shares outside Japan was off 0.4 per cent.
South Korea’s KOSPI shed 1.1 per cent while Japan’s Nikkei fell 1.0 per cent, though it has drawn support from a recent sharp reversal in the yen.
S&P 500 futures eased 0.5 per cent and Nasdaq futures 0.6 per cent. The S&P 500 has repeatedly failed to clear its 200-day moving average around 4,320 and ended last week down 1.2 per cent.
BofA’s latest survey of investors found most were still bearish though 88 per cent did expect lower inflation over time, the highest percentage since the financial crisis.
“That helps explain this month’s rotation into equities, tech and discretionary, and out of defensives,” said BofA strategist Michael Hartnett. “Relative to history investors are still long defensives and short cyclicals.” He remained a cautious bear given rising interest rates and recommended fading further S&P rallies above 4,328.
// Yields spike Equity valuations were not helped by a steep rise in global bond yields last week. British 10-year yields climbed by the most in five years following a shock inflation report, while bund yields jumped on a sky-high rise in German producer prices.
Ten-year Treasury yields rose 14 basis points over the week and last stood at 2.99 per cent, while the curve remained deeply inverted to reflect the risk of recession.
The general air of global uncertainty has tended to boost the US dollar as the most liquid of safe havens, sending it 2.3 per cent higher last week to 108.18 on a basket of currencies last week in its best performance since April 2020.
“The USD can track above 110.00 week if the August flash PMIs for the major economies show a further slowing in economic growth or contraction in activity,” said Joseph Capurso, head of international economics at CBA, referring to surveys of manufacturing due tomorrow.
“We also expect Powell to deliver a hawkish message about inflation in line with recent comments from other Fed officials, supporting the USD.” The dollar was up at ¥137.04, having shot up 2.5 per cent last week, while the euro was struggling at US$1.0030 after losing 2.2 per cent last week.
Minutes of the European Central Bank’s last policy meeting are due this week and are likely to sound hawkish given they decided to hike by 50 basis points.
The rise in the dollar has been a setback for gold, which was pinned at US$1,744 an ounce.
Oil prices were also under pressure amid worries about global demand and the high dollar.
Brent was down US$1.02 at US$95.70, while US crude lost 99 cents to US$89.78 per barrel. — Reuters
