Asian stocks get squishy as rates rise, earnings rise

SYDNEY, Jan 30 (Reuters) – Asian shares turned mixed on Monday ahead of a week in which interest rates in Europe and the United States are certain to rise, along with U.S. jobs and wage data that could influence how much more they stay go

Earnings from a who’s who of tech giants will also test the strength of Wall Street bulls, who are seeking to lead the Nasdaq to its best January since 2001.

Asia also held firm as China’s rapid reopening bolstered the economic outlook, with MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) up 11% in January so far at a nine-month high.

The index fell 0.2% on Monday with mixed markets in the region. Japan’s Nikkei (.N225) fell while Taiwan (.TWII) jumped 3.1%.

The Nikkei newspaper reported on Renault (RENA.PA) was to reduce its stake in Nissan (7201.T) up to 15%, while the latter will invest in Renault’s electric car business.

Chinese blue chips (.CSI300) rose 1.1% after returning from vacation. Beijing reported that Chinese Lunar New Year travel was up 74% from last year, although this is still only half of pre-pandemic levels. Read more

S&P 500 futures and Nasdaq futures were down 0.3%, while EUROSTOXX 50 futures and FTSE futures were down 0.2%.

Investors are confident that the Federal Reserve will raise interest rates by 25 basis points on Wednesday, followed the next day by half-point hikes by the Bank of England and the European Central Bank, and any deviation from that scenario would be a real shock.

Equally important will be the guidance for future policy, with analysts expecting a hawkish message that inflation has not yet been defeated and more needs to be done. Read more

“With US labor markets still tight, core inflation elevated and financial conditions easing, Fed Chair Powell’s tone will be hawkish, stressing that tapering to a 25 bp increase doesn’t mean a pause is coming,” said Bruce Kassman, chief economist at JPMorgan, who expects another rise in March.

“We also expect him to continue to resist market pricing of rate cuts later this year.”

There is a lot of work to be done, given that futures currently have rates peaking at 5.0% in March, only to fall back to 4.5% by the end of the year.

APPLE OF THE EYE

The yield on the 10-year note has fallen 33 basis points so far this month to 3.50%, essentially easing financial conditions even as the Fed talks tough about tightening.

This dovish outlook will also be tested by US wage data, the employment cost index and various ISM surveys.

EU inflation figures could be key to whether the ECB signals a half-point interest rate hike for March or opens the door to slowing the pace of tightening. Read more

As for Wall Street’s recent rally, much will depend on Apple Inc.’s earnings (AAPL.O)Amazon.com (AMZN.O)Alphabet Inc (GOOGL.O) and meta platforms (META.O)among many others.

“Apple will provide insight into the overall demand story for consumers globally and a snapshot of China’s supply chain issues that are beginning to slowly abate,” Wedbush analysts wrote.

“Based on our recent inspections of the supply chain in Asia, we believe demand for the iPhone 14 Pro is holding up stronger than expected,” they added. “Apple will likely cut some costs around the edges, but we don’t expect massive layoffs.”

Market pricing in early Federal Reserve easing weighed on the dollar, which has lost 1.6 percent so far this month to 101.790 against a basket of major currencies.

The euro was up 1.5% for January at $1.0878, just above a nine-month high. The dollar even lost 1.3% against the yen to 129.27, despite the Bank of Japan’s staunch defense of its ultra-easy policy.

The drop in the dollar and yields has been a boon for gold, which is up 5.8% for the month to date at $1,930 an ounce.

China’s swift reopening is seen as a windfall for commodities in general, supporting everything from copper to iron ore to oil prices.

The oil market was mixed on Monday, with Brent down 11 cents to $86.55 a barrel, while U.S. crude fell 3 cents to $79.65.

Reporting by Wayne Cole; Editing by Christopher Cushing

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