©Health & Fitness Journal. FILE PHOTO: A passer-by walks past an electric monitor displaying the chart of recent movements in the Japanese Yen exchange rate against the U.S. Dollar in Tokyo, Japan October 20, 2022. REUTERS/Issei Kato/File Photo
By Wayne Cole
SYDNEY (Health & Fitness Journal) – Asian stock markets took a breather on Monday after last week’s sweeping rally, as a top US central banker warned investors not to get carried away by an inflation number, sending bond yields and the dollar higher drives.
A slight absence of US inflation was enough to send 2-year Treasury yields down 33 basis points this week and the dollar down almost 4%, the fourth largest weekly decline since the start of the floating exchange rate era over 50 years ago.
The resulting easing in US financial conditions was not entirely welcomed by the Federal Reserve, however, as Governor Christopher Waller said it would take a series of soft reports for the bank to take its foot off the brakes.
Waller added that even with just one inflationary push, markets were way ahead of themselves, although he acknowledged the Fed may now be starting to slow down its rate hike thinking.
Futures are heavily betting on a half point rate hike to 4.25-4.5% in December and then a few quarter points to a peak in the 4.75-5.0% range.
“CPI’s downside surprise is consistent with a broad range of indicators pointing to a slowdown in global inflation, which should encourage moderation in the pace of monetary tightening at the Fed and elsewhere,” said Bruce Kasman, head of economic research at JPMorgan (NYSE :).
“This positive message needs to be tempered by the recognition that cutting inflation will be too little for central banks to declare mission accomplished and that further tightening is likely on the way.”
MSCI’s broadest index of Asia-Pacific stocks outside of Japan rose 0.2% after rising 7.7% last week.
was flat while South Korea gained 0.3%. fell 0.2%, while Nasdaq futures lost 0.3%.
EYES ON CHINA
Traders also waited to see if Chinese stocks could continue their big rally after regulators reportedly asked financial institutions to provide more support to stressed property developers.
Blue chips rose on Friday, helped by a series of changes to China’s COVID curbs, although the country reported more cases over the weekend.
“It’s hard to see that the case news is anything but negative from an economic perspective, but it’s the symbolism of the move, however small, in the zero-COVID strategy that markets are happily clinging to” said Ray Attrill, head of FX strategy at NAB.
US President Joe Biden is set to meet Chinese leader Xi Jinping in person on Monday for the first time since taking office, with US concerns over Taiwan, Russia’s war in Ukraine and North Korea’s nuclear ambitions high on his agenda.
News of the COVID rules had prompted a yuan rally to cover short selling last week, adding to overall pressure on the dollar as yields tumbled. The dollar gained some ground early Monday as its index rose 0.4% to 106.870, but remained well below last week’s high of 111.280.
The euro eased slightly to $1.0324 after rising 3.9% last week, while the dollar firmed to 139.77 yen after falling 5.4% last week.
The dollar lost almost as much against the Swiss franc, in part on warnings from the Swiss National Bank that it would use interest rates and foreign exchange purchases to tame inflation.
Sterling slipped back to $1.1790 ahead of the UK Chancellor’s autumn statement on Thursday, which is expected to outline tax hikes and spending cuts.
Cryptocurrencies remained under pressure as at least $1 billion in customer funds were reported to have disappeared from the collapsed crypto exchange FTX.
was traded up 2.4% at $16,386 after losing nearly 22% last week.
The dollar’s recent drop gave commodities a much-needed boost, with gold rallying to $1,768 an ounce after surging above $100 last week. [GOL/]
Oil futures extended gains 86 cents to $96.85, while rising 80 cents to $89.76 a barrel. [O/R]