On Monday, Asian stocks plummeted to two-month lows as the market was forced to accept the ever-increasing interest rate for U.S and European bonds, causing a major slump in global bonds and strengthening the dollar near multi-week highs.
An Increase In Interest Rate Is a Great Possibility
Investors are apprehensive of what the oncoming U.S. data will bring, especially regarding closely observed ISM indices for manufacturing and services—the latter being pivotal in light of January’s unexpected surge in activity. Around six Fed representatives have also been added to this week’s agenda with plans to discuss the possibility of additional interest rate hikes moving forward.
As the National People’s Congress prepares to launch this weekend with new economic policy goals and government reshuffling, MSCI’s broadest index of Asian stocks outside Japan has dropped by a staggering 1.0%. The Nikkei in Japan is down 0.2%, while South Korea decreased by 1.2%. In China, blue chips have fallen a more modest 0.2%, yet China Renaissance Holdings surged after revealing that its missing chairman is collaborating with Chinese authorities to investigate his whereabouts.
On Friday, the S&P 500 successfully penetrated support at 4,000 due to positive spending and core prices data. This led Fed futures to anticipate rates peaking around 5.42%, which is equivalent to three more interest rate hikes from its current threshold of 4.50% – 4.75%. Additionally, markets are now expecting higher expected rate tops for numerous other central banks such as the European Central Bank and Bank of England, while EUROSTOXX 50 futures rose 0.1%, FTSE futures jumped 0.4%, S&P 500 Futures increased by 0.1% and Nasdaq future edged up a further 0.2%.
The US Economy Continues to Grow
Bruce Kasman, the lead of economic research at JPMorgan Chase Bank, recently raised his estimation for a quarter-point hike from the European Central Bank to 100 basis points. Germany’s two-year bond yield surpassed 3.0% last Friday – an occurrence not seen since 2008! In addition to this news, Kasman commented that “the risk leans toward further activity from the Fed.” Furthermore, he added that even though demand is proving strong despite tightening times and COVID wreaking havoc on production capacities, there remains a risk that central banks may unintentionally initiate another recession with their quick policy shifts currently underway. The Atlanta Fed‘s eminent GDP Now tracker suggests the U.S economic development is continuing to expand at an annualized 2.7% in the first quarter, indicating no diminishment from the December quarter growth rate.
Recent Developments Are Quite Favorable for the Dollar
Last week, the U.S. dollar surged by 1.3% against a basket of currencies and reached 105.220, with the euro pinned at $1.0546 following its seven-week low of $1.0536 on Friday’s closeout day! Moreover, dovish comments from Japan’s Bank policymakers caused the dollar to reach a nine-week peak versus the yen at 136.27. Unfortunately for gold investors, however, their commodity has been affected negatively as it darkly spiraled down last week by 1;7% and is currently resting around $1,810 an ounce