Investors price in a 78% chance of a rate rise to 5.25%-5.5% as the possible conclusion to the Fed’s tightening cycle
21 June 2023 - 07:38
byWayne Cole
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Sydney — Asian stocks were subdued on Wednesday as a lack of new stimulus steps from Beijing frustrated investors, who were also wondering just how hawkish the world’s most powerful central banker would choose to be later in the session.
US Federal Reserve chair Jerome Powell faces legislators in two days of testimony and is sure to be questioned on whether rates will really rise again in July and peak in a 5.5%-5.75% range as projected.
Markets have their doubts and imply about a 78% chance of a hike to 5.25%-5.5% next month, with that likely being the end of the entire tightening cycle.
“The focus is on whether the July meeting is truly ‘live’ and if the Fed dot plot of two more hikes is a true base case depending on the data, or doom-mongering on inflation in an effort to ensure no premature easing in financial conditions,” said Tapas Strickland, head of market economics at NAB.
The uncertainty kept S&P 500 and Nasdaq futures flat after a slight dip overnight. Euro Stoxx 50 futures edged up 0.2% and FTSE futures 0.1%.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.8%, with Japan off 0.5%.
Japan’s Nikkei inched up 0.1% as the market consolidates three months of hefty gains. A survey showed morale at big Japanese manufacturers edged up in June to stay in positive territory for a second straight month.
Chinese blue chips eased 0.5% with investors still disappointed by the extent of Tuesday’s rate cuts, which also saw the yuan hit its lowest for the year.
BOJ in no hurry
Elsewhere in currencies, the battered Japanese yen won some respite as risk aversion prompted profit-taking on very crowded short positions. The currency has been falling for weeks as the Bank of Japan (BOJ) doggedly defended its super-easy policies.
Minutes of the central bank’s last meeting showed just one of nine board members suggested reconsidering its policy of keeping bond yields low, and even then suggested it was best to wait a while.
That lack of urgency should limit any bounce in the yen and kept the dollar underpinned at 141.56 yen, only just off Tuesday’s seven-month high of 142.26.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.8%, with Japan off 0.5%.
The euro, likewise, steadied at 154.54 yen, after dipping from a peak of 155.37. The single currency was flat on the dollar at $1.0965, as was sterling at $1.2760.
The pound faces a major test from data on UK consumer prices later in the day, where any upside surprise would add to pressure for the Bank of England (BOE) to hike by an outsize 50 basis points (bps) at its policy meeting on Thursday.
Median forecasts are for headline inflation to ease to 8.4%, but core to hold at 6.8%.
“We look for the BOE to hike 25bps on Thursday, but given that recent data have surprised to the upside, we see a good case for a 50bps hike,” wrote analysts at JPMorgan in a note. “We will be closely watching the CPI report for a signal on the BOE’s path to a terminal rate.”
Futures currently imply about a 25% chance of a half-point hike.
Rising interest rates and higher bond yields have been a burden for gold, which was pinned at $1,936 an ounce, just above last week’s three-month low of $1,924.99.
Oil prices edged higher after a couple of sessions of losses, still struggling with concerns about Chinese demand absent a sizeable stimulus package.
Brent added 17c to $76.07 a barrel, while US crude rose 20c to $71.39.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Asian stocks waver ahead of Powell’s testimony
Investors price in a 78% chance of a rate rise to 5.25%-5.5% as the possible conclusion to the Fed’s tightening cycle
Sydney — Asian stocks were subdued on Wednesday as a lack of new stimulus steps from Beijing frustrated investors, who were also wondering just how hawkish the world’s most powerful central banker would choose to be later in the session.
US Federal Reserve chair Jerome Powell faces legislators in two days of testimony and is sure to be questioned on whether rates will really rise again in July and peak in a 5.5%-5.75% range as projected.
Markets have their doubts and imply about a 78% chance of a hike to 5.25%-5.5% next month, with that likely being the end of the entire tightening cycle.
“The focus is on whether the July meeting is truly ‘live’ and if the Fed dot plot of two more hikes is a true base case depending on the data, or doom-mongering on inflation in an effort to ensure no premature easing in financial conditions,” said Tapas Strickland, head of market economics at NAB.
The uncertainty kept S&P 500 and Nasdaq futures flat after a slight dip overnight. Euro Stoxx 50 futures edged up 0.2% and FTSE futures 0.1%.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.8%, with Japan off 0.5%.
Japan’s Nikkei inched up 0.1% as the market consolidates three months of hefty gains. A survey showed morale at big Japanese manufacturers edged up in June to stay in positive territory for a second straight month.
Chinese blue chips eased 0.5% with investors still disappointed by the extent of Tuesday’s rate cuts, which also saw the yuan hit its lowest for the year.
BOJ in no hurry
Elsewhere in currencies, the battered Japanese yen won some respite as risk aversion prompted profit-taking on very crowded short positions. The currency has been falling for weeks as the Bank of Japan (BOJ) doggedly defended its super-easy policies.
Minutes of the central bank’s last meeting showed just one of nine board members suggested reconsidering its policy of keeping bond yields low, and even then suggested it was best to wait a while.
That lack of urgency should limit any bounce in the yen and kept the dollar underpinned at 141.56 yen, only just off Tuesday’s seven-month high of 142.26.
The euro, likewise, steadied at 154.54 yen, after dipping from a peak of 155.37. The single currency was flat on the dollar at $1.0965, as was sterling at $1.2760.
The pound faces a major test from data on UK consumer prices later in the day, where any upside surprise would add to pressure for the Bank of England (BOE) to hike by an outsize 50 basis points (bps) at its policy meeting on Thursday.
Median forecasts are for headline inflation to ease to 8.4%, but core to hold at 6.8%.
“We look for the BOE to hike 25bps on Thursday, but given that recent data have surprised to the upside, we see a good case for a 50bps hike,” wrote analysts at JPMorgan in a note. “We will be closely watching the CPI report for a signal on the BOE’s path to a terminal rate.”
Futures currently imply about a 25% chance of a half-point hike.
Rising interest rates and higher bond yields have been a burden for gold, which was pinned at $1,936 an ounce, just above last week’s three-month low of $1,924.99.
Oil prices edged higher after a couple of sessions of losses, still struggling with concerns about Chinese demand absent a sizeable stimulus package.
Brent added 17c to $76.07 a barrel, while US crude rose 20c to $71.39.
Reuters
Asian stocks fall as China’s rate cut disappoints
Asian stocks falter as Fed signals more US rate hikes
Asia stocks gain on China stimulus expectations and stronger Wall Street
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Most Read
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.