MSCI Inc’s Asia Pacific Index was on course for the lowest close in more than two weeks, with declines across equity benchmarks in Hong Kong, South Korea and Australia. Contracts for the S&P 500 and the Nasdaq 100 were in the red following a muted end to trading last week.

Leveraged investors boosted their net short positions on 10-year Treasury futures to a record 1.29 million contracts as of 18 April, data from the Commodity Futures Trading Commission show. That’s an indication that they think the Federal Reserve will keep raising policy rates to tackle inflation. 

“The thought that the Fed is going to aggressively cut into year-end is misleading,” said Kim Strand, head of fundamental research and ESG integration for Franklin Templeton Investment Solutions, speaking on Bloomberg Television. “We believe what the Fed is saying: that it will hike and stay there until you see these areas of inflation coming down.”

Swaps markets continue to see Fed rates peaking in coming weeks before a series of cuts later this year. US GDP data is forecast to reveal slowing growth, while the so-called core PCE deflator, the central bank’s preferred inflation gauge, is expected to show a cooling in prices growth. 

But, the central bank’s favoured wages gauge is projected to show worker pay accelerated, according to forecasts from Bloomberg Economics.

Investors may be marking time waiting to see if the Fed will proceed with a widely-expected 25 basis point hike at the meeting on 2-3 May, Ed Yardeni, founder of Yardeni Research, wrote in a note. 

Treasuries edged higher in Asia, while Australian bonds fell. US two-year yields, which are more sensitive to the outlook for Fed policy than longer maturities, were little changed on Monday after climbing eight basis points last week.

The Bloomberg Dollar Spot Index gained while the yen erased an advance. New Bank of Japan Governor Kazuo Ueda will hold his first policy meeting later this week. The central bank is planning to review and inspect policies taken over the past decades as soon as this week’s meeting, Sankei newspaper reported on Sunday.

A global gauge of cross-asset volatility remained near the lowest since February 2022, while other volatility gauges, such as the VIX Index and the ICE BofA MOVE Index, are also well below recent highs.

The situation may not last. Volatility is likely to pick up due to the lack of clarity after the Fed’s May meeting, said Priya Misra, global head of rates strategy at TD Securities in New York. “There’s enough uncertainty on the economic outlook as well as how the Fed might respond,” she said on Bloomberg Radio.

Elsewhere this week, the euro-area will publish GDP data and there will be a policy decision in Sweden.

A busy week for earnings will include Credit Suisse Group AG and UBS Group AG, First Republic Bank and First Citizens Bank, the acquirer of Silicon Valley Bank. Tech companies will also be in the spotlight with those to report including Microsoft, Meta and Amazon.com.

In commodities, oil extended its drop following last week’s decline and gold slid. BM/DM