Dollar rises, stocks face headwinds from Fed rates

BROOKLYN – The US dollar rose in early trading on Monday, adding to a third week of gains as hawkish comments by Federal Reserve officials and geopolitical tensions bolstered the appeal of the greenback.

Asian stocks looked set for a mixed open. Equity futures for Japan pointed to small gains, while those for Hong Kong fell and contracts for Australia’s benchmark were flat.

The S&P 500 Index declined on Friday and dropped for a second week, while the tech-heavy Nasdaq 100 also slid, but eked out a weekly gain.

A

report from Goldman Sachs Group tipping a rebound in Chinese stocks

added a counterweight to the flow of news damping appetite for equities. Investors in China were also on the lookout for any potential cut to the nation’s prime loan rates on Monday.

There was no cooling of US-China tensions over the weekend, with Beijing’s top diplomat labelling the American response to the balloon it shot down “hysterical” while his counterpart Antony Blinken said its entry into US airspace was “irresponsible”.

Meanwhile, North Korea test-fired an intercontinental ballistic missile.

Above and beyond this, investors are focused on the shifting outlook for interest rates, with traders fully pricing in quarter-point interest rate increases at the Fed’s next two meetings after policymakers said on Thursday that bigger hikes were not out of the question. 

Federal Reserve Bank of Richmond president Thomas Barkin said on Friday that he favoured a quarter-point interest rate hike in February to give the central bank “flexibility” in its quest to tamp down inflation.

Fed governor Michelle Bowman said rates need to keep going higher since inflation remains “much too high”.

In commodities, oil capped its longest string of daily losses on the year last week as rising US inventories and the prospect of further tightening by the Fed eclipsed the lift from signs that Chinese energy demand is improving. BLOOMBERG