The Nub
Stocks climbed in Asia following a rebound in the final hour of New York trading as investors shifted positions ahead of a flurry of central bank decisions this week led by the Federal Reserve. MSCI’s Asia-Pacific equity index advanced for the first time in six days, paced by tech stocks in Hong Kong, where the benchmark Hang Seng Index rose more than 1%. Japan’s Nikkei 225 earlier jumped by around the same amount after traders returned from a holiday. S&P 500 and Nasdaq 100 futures edged higher.
Why Does it Matter
Treasury 10-year yields hovered near 3.5% while yields on the more policy-sensitive two-year rate hit the highest since 2007 and are poised to crack above 4%, amid fears that an over tightening of monetary settings raises the odds of a hard landing. Investors are on tenterhooks as they await policy decisions that are expected to bring hefty rate hikes from the US, UK and Sweden. Decisions are also due in Japan, Switzerland, Indonesia, Norway and the Philippines, among others. The dollar was little changed below recent highs, while the yen was held comfortably below the key 145 level. The yuan was on the weak side of 7 versus the dollar.
What Next
Strategists at JPMorgan Chase & Co estimate the Fed will increase rates to 4.25% by early next year. “We expect central bank tightening and a fading of supply chain pressures to moderate job growth and core inflation. In turn, we anticipate this will allow the Fed and other central banks to pause in 1H23,” strategists including Marko Kolanovic and Nikolaos Panigirtzoglou wrote in a note on Monday. In China, banks kept their main lending rates unchanged after the central bank paused its monetary easing and defended a weakening yuan. In a time-tested harbinger of an economic downturn, short-term US rates have exceeded yields on longer maturities for months. The MLIV Pulse survey, which drew 737 responses, showed that the bulk of contributors expect a deeper inversion. Some see it reaching levels last seen in the early 1980s, when Paul Volcker ratcheted up borrowing costs to break the back of hyperinflation.
