Asia stocks, US futures slide on Fed hike bets
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Two Fed officials say they are considering 50-basis-point interest rate hikes to battle persistently high inflation.
PHOTO: AFP
SINGAPORE – Stocks in Asia dropped alongside US equity futures
An Asian stock benchmark was set for a third straight weekly slide, the worst such run of losses since October. Contracts for both the S&P 500 and Nasdaq 100 were down after the underlying indexes sank more than 1 per cent on Thursday.
The Bloomberg dollar gauge rose as much as 0.4 per cent, erasing its losses for the year, while benchmark Treasury yields climbed for a fourth day. Yields on two-year and 10-year Treasuries both set 2023 highs this week. Data on Thursday showed that US producer prices rebounded in January by the most since June.
Federal Reserve Bank of Cleveland president Loretta Mester said she had seen a “compelling economic case” for rolling out another 50-basis-point hike, and St Louis Fed president James Bullard said he would not rule out supporting a half-percentage-point increase at the Fed’s March meeting, rather than a quarter point.
Their warnings came after United States producer prices rebounded in January by the most since June. While Ms Mester and Mr Bullard participate in deliberations, they do not vote on monetary policy decisions this year.
The market has been “a little bit too sanguine” so far this year concerning any imminent Fed pivot, according to Ms Helen Zhu, chief investment officer at Hong Kong-based Nan Fung Trinity.
“We don’t necessarily think there is going to be a 50-basis-point rate hike at this next Fed meeting, but we do think that the expectations for a lot of cuts in the second half of this year are probably overdone,” Ms Zhu said on Bloomberg Television.
Investors have been upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing past 5.2 per cent in July, according to trading in the US money markets. This compares with a perceived peak rate of 4.9 per cent just two weeks ago.
Australian bond yields rose, following the moves in Treasuries, and as the chief of the nation’s central bank spoke in Parliament. Governor Philip Lowe said further rate increases would be needed to tame rising prices as policymakers balanced two key risks.
“One is the risk of not doing enough, which would result in high inflation persisting and then later proving very costly to get down,” he said. “The other is the risk that we move too fast, or too far.”
China liquidity
In China, the central bank added the biggest amount of cash on record into the banking system to avoid a liquidity squeeze. Earlier, the government was said to be selecting regulatory veterans known for their strict campaigns against financial wrongdoing as the new heads of the country’s banking and securities watchdogs.
China Renaissance fell as much as 50 per cent in Hong Kong, the most ever, after saying that it was unable to contact Mr Bao Fan, who is the chairman, chief executive officer and controlling shareholder of the Chinese investment bank.
Most of the dollar bonds issued by the Adani Group exited distressed territory after the Indian conglomerate said it would address upcoming maturities of the debt. The move was seen as the group’s latest effort to boost investor sentiment after a rout sparked by a US short-seller report.
Bitcoin retreated after three days of gains
In commodities, oil headed for a weekly drop as rising US inventories and the prospect of further tightening by the Fed eclipsed the lift from more signs that Chinese energy demand was improving. Gold fell. BLOOMBERG
