Asian markets fell silent in the countdown to the Fed’s take-off

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People wearing protective masks, amid the coronavirus disease (COVID-19) outbreak, are reflected on an electronic board displaying Japanese stock prices outside a brokerage house in Tokyo, Japan , October 5, 2021. REUTERS / Kim Kyung-Hoon

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  • Asian Stock Markets:
  • Nikkei, U.S. Equity Futures Stagnate in Cautious Trade
  • The Fed announced the premature end of its reduction
  • Focus on the start, speed of hikes and peak rates
  • T-bills expect an all-time low

SYDNEY, Dec. 15 (Reuters) – Asian markets were in a precarious position on Wednesday as the world awaited news from the US Federal Reserve on when it would stop buying assets and start raising interest rates, which could put pressure on his peers to follow.

Futures contracts already foresee the end of the reduction by March and a first hike to 0.25% in May or June, with rates approaching 0.75% at the end of the year.

BofA’s latest survey of fund managers shows they are in favor of ending tapering in April and just two hikes in 2022, making them more vulnerable to a hawkish outlook.

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The ultimate destination of rates will also be vital, given that markets are currently pegged at just 1.5-1.75%, a level that would likely not even exceed inflation.

“Basically there is an implicit assumption that all the Fed has to do is squeeze the Fed funds brake to just 150 basis points, and the economy will slow enough to break the inflation cycle. “noted Alan Ruskin, macro strategist at Deutsche Bank.

“Yet we’ve never had a peak in a cycle where actual rates haven’t been above zero, which means the expected final market rate is too low and perhaps way too low.”

If Fed members agreed and planned for a much higher peak, it would call into question the high valuations of stocks and the low yields offered by Treasuries. Right now, the bonds imply that spot rates will only average 1.8% over the next 30 years.

The rapid spread of the Omicron variant is an additional complication that could make the Fed be less hawkish, although officials recently have seemed more concerned about the persistence of inflation than the pandemic.

Whatever the Fed’s decision, it will set the bar high for the central banks of the EU, UK and Japan when they meet this week, and will add to the pressure for further tightening in the markets. emerging.

So many potential pitfalls made investors nervous, and the largest MSCI Asia-Pacific stock index outside of Japan (.MIAPJ0000PUS) fell 0.1% in slow trading.

The Japanese Nikkei (.N225) edged up 0.1% and South Korea (.KS11) lost 0.3%. Data on Chinese retail sales and industrial production is also due later Wednesday, followed by retail sales in the United States.

Futures on the Nasdaq and S&P 500 were virtually unchanged at the start of trading, losing ground overnight.

Yields on Treasuries were slightly higher following a surprisingly strong reading of US producer price inflation overnight. Read more

Ten-year yields climbed to 1.44%, but remain well below the recent high of 1.693%. The yield curve continued its flattening trend as investors bet that an earlier onset of Fed tightening will lead to a slowdown in inflation in the long run.

The prospect of a short-term rate hike has supported the US dollar, particularly against the euro and the yen where monetary policy is expected to lag.

The single currency fell back to $ 1.1256 and was once again approaching its recent low of $ 1.184. The dollar strengthened at 113.71 yen and came close to resistance at 113.95.

The dollar index climbed to 96.554, with bulls eyeing the November high at 96.938.

The risk of a rise in spot rates was a burden for gold, which offers no fixed return, and left it sidelined at $ 1,772 an ounce.

Oil prices have fallen after the International Energy Agency (IEA) said the spread of the Omicron coronavirus variant would hurt the recovery in global demand for fuel.

US crude fell 34 cents in early stock to settle at $ 70.39 a barrel.

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Editing by Sam Holmes

Our standards: Thomson Reuters Trust Principles.

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