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Stocks mixed in cautious trading; dollar edges ep: markets wrap

Stocks mixed in cautious trading; dollar edges ep: markets wrap
The People's Bank of China (PBOC) in Beijing, China, on Monday, 13 December 2021. (Photo: Andrea Verdelli/Bloomberg)

Asian equities were mixed and US and European share futures rose slightly in a cautious start to trading on Monday as investors weighed the prospect of more rate hikes and an economic slowdown. The dollar gained.

Stocks were higher in Japan and Australia while equities fluctuated in Hong Kong rose in Shanghai after the People’s Bank of China kept a key lending rate unchanged and made the smallest net injection of liquidity since November.   

The S&P 500 futures rose 0.2%, those for Euro Stoxx 50 added about the same amount and contracts for the Nasdaq 100 were little changed. The S&P 500 climbed 0.8% last week and Nasdaq 100 squeezed out a 0.1% gain as policy-sensitive technology names like Microsoft Inc. and Apple Inc. dragged on the tech gauge. Swaps traders upped bets for a rate increase by June and pricing suggests a quarter point hike has better than three-in-four odds for May.

The dollar advanced slightly versus major peers. Treasury yields were little changed, with the rate-sensitive two-year hovering at around 4.1% on Monday. It was driven higher last week by a measure of March retail sales showing core readings declined less than estimated and comments from Fed officials. Yields on government bonds in Australia and New Zealand climbed in early trading.

Looking further ahead this week, investors are awaiting the release of the Fed’s Beige Book and commentary from officials including John Williams, Raphael Bostic, Loretta Mester and Lisa Cook. Markets were rattled last week after Fed governor Christopher Waller said he favoured more policy tightening in the central bank’s battle with inflation.

Traders have upped wagers for at least one more interest rate increase from the Federal Reserve this year as worries about the banking sector abate and inflation pressure persists in the US.

“I don’t think all of the rate hikes have worked their way through the system and it looks as though the Fed is going to continue to tighten,” Frances Stacy, director of strategy at Optimal Capital Advisors, said on Bloomberg Television. “I don’t think we’re completely out of the woods yet, but that doesn’t mean that the risk is going to happen overnight, but when something does hit, markets can gap down pretty dramatically.”

Much of the focus in Asia will be on China and the strength of its economic recovery. Figures on Tuesday are projected to show gross domestic product expanded 3.9% in the first quarter from a year earlier, well below the government’s target for full-year growth of around 5%. March data may show increases in industrial output, investment and retail sales. 

In Japan, shares of security companies rose after Prime Minister Fumio Kishida was targeted by an explosive device at an event he attended in central Japan, weeks before he hosts the world leaders for a G7 summit. There was little discernible impact on wider Japanese markets. 

Financials outperformed last week with JPMorgan Chase & Co and Citigroup leading the charge after earnings and the sector will remain in the hot seat on Monday when Charles Schwab Corp and State Street Corp report. 

Investors will be looking for signs of health from Schwab, which has plunged nearly 40% this year as rising rates drove a spike in unrealised losses at the brokerage. Bank of America Corp and Goldman Sachs Group Inc will report later in the week as will Netflix and Tesla.

AllianceBernstein regards it as unlikely for earnings to turn strongly positive in the US by the fourth quarter. “It’s much more likely that we’re going to hit an economic recession in the US over the next 12 months,” David Wong, senior investment strategist, said on Bloomberg Television.

While recent data suggested runaway prices were moderating somewhat, a Friday report suggested Americans are pessimistic. Inflation expectations jumped in April with consumers seeing prices climbing 4.6% on an annual basis, up from 3.6% in March, according to a University of Michigan survey.

In commodities, crude was little changed on Monday after logging its fourth week of gains amid signs of a tightening global market. Gold was flat and Bitcoin slipped below the key $30,000 level. BM/DM


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