Asian stocks and dollar direction seek as investors look to Fed policy

SINGAPORE (Reuters) – Asian stocks and the dollar struggled to find direction on Tuesday as investors awaited Federal Reserve Chairman Jerome Powell’s appearance before the Senate Banking Committee in hopes of have clues as to when the expected policy tightening.

FILE PHOTO: Pedestrians wearing face masks walk near an overpass with an electronic map displaying inventory information, following an outbreak of coronavirus disease (COVID-19), in the Lujiazui financial district in Shanghai, China, March 17, 2020. REUTERS / Aly Song

Powell is running for a second four-year term at the head of the Fed, and his appearance before the committee will be followed by a hearing Thursday with running mate Lael Brainard.

EUROSTOXX 50 futures were up 0.6% and FTSE futures were up 0.3%, indicating a firm open for European stock markets.

Global markets are at the forefront of inflation risks, but Hou Wey Fook, chief investment officer at DBS Bank, said he didn’t think inflation was in a “galloping situation.”

“There are many short-term drivers like the global supply chain and the reopening of economies,” Hou said.

“Once we have some normalization of these things, inflation should sort of come down to more reasonable levels and the Fed probably won’t be too aggressive,” he said.

The largest MSCI index for Asia-Pacific equities excluding Japan rose 0.2% after falling 0.3%.

The Nikkei index fell 0.9% as trading resumed after a public holiday on Monday. Australian stocks lost 0.8%, Taiwan added 0.3% and Seoul was flat.

Hong Kong rose 0.1% and China’s 300 index lost 0.8%.

Data on consumer inflation in the United States for December will be released on Wednesday, with a headline CPI estimated at 7% year-on-year, reinforcing the case for an interest rate hike earlier than late.

The S&P 500 and Nasdaq futures contracts were little changed.

The Fed announced in December its intention to tighten policy faster than expected in response, with a rate hike possibly as early as March.

But that was before it became clear how quickly the Omicron variant would spread, with this week’s hearings being the first opportunity for Powell and Brainard to say how the current disease outbreak has influenced their outlook.

“We continue to believe that take-off in March is more and more likely. How these debates are settled will likely have implications for post-take-off rate hikes, ”Nomura economists said in a report, referring to US monetary policy.

“In particular, we believe the comments about earlier runoff and less aggressive rate hikes support our view that the Fed will slow the pace of rate hikes to two per year in 2023.”

Asian stocks have performed relatively better since the start of the year. MSCI’s key benchmark remained stable, with gains recorded in Indian and Hong Kong stocks, while the Japanese and Chinese markets fell.

US stocks bruised the first week of the year when the Fed signaled it would tighten policy faster to fight inflation, then data showed a strong US labor market.

On Monday, the Dow Jones Industrial Average lost 0.45% and the S&P 500 lost 0.14%. Tech stocks made a late rally to leave the Nasdaq Composite up 0.05%.

On Tuesday, the dollar index, which measures the currency against six counterparties, was hovering around 95.832.

It peaked over 16 months at 96.938 on November 24 amid increasing aggression from Fed policymakers, but has since stuck between that level and 95.544, hit less than a week later. .

Yields on 10-year US Treasuries peaked 1.8080% in US exchanges, levels last seen in January 2020. The yield then fell to 1.7640.

Oil prices rose Tuesday after two days of losses. Brent crude futures rose 0.5% to $ 81.3 a barrel after falling 1% in the previous session.

Reporting by Anshuman Daga; Editing by Ana Nicolaci da Costa & Simon Cameron-Moore

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