Stocks were strained, the dollar rose to buy the central bank

Passersby wearing protective face masks walk past a stock quote board in Tokyo, Japan on February 24, 2022. REUTERS/Issei Kato

SYDNEY, Sept 19 (Reuters) – Shares fell and the dollar strengthened in Asia on Monday, as investors braced for a week of central bank meetings around the world that are certain to raise borrowing costs, with some big upside risks. in the United States.

Markets are already fully priced in for a 75 basis point rate hike from the Federal Reserve, with futures indicating a 20% chance of a full percentage point hike.

They also point to a real chance that interest rates could reach 4.5% as the Fed is forced to push the economy into recession to curb inflation. read more

“How high will the interest rate ultimately be?” Goldman Sachs Chief Economist Ian Hatzius said.

“Our response is high enough to create a tightening in financial conditions, which affects activity enough to maintain a below-potential growth trajectory.”

He expects the Fed to raise rates by 75 basis points on Wednesday, followed by two-and-a-half basis point hikes in November and December.

Fed members’ “point plan” forecasts for the policy rate will also be significant, likely to be 4% to 4.25% by the end of this year and even higher next year.

That risk saw two-year Treasury yields jump 30 basis points last week to their highest level since 2007 at 3.92%, making stocks look more expensive by comparison and dragging the S&P 500 down nearly 5% for the week.

Holidays in Japan and the UK got off to a slow start on Monday, with S&P 500 futures down 0.2% and Nasdaq futures down 0.5%.

EUROSTOXX 50 futures added 0.2%, FTSE futures closed flat.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) down 0.5% after losing almost 3% last week.

Japan’s Nikkei (.N225) closed, but futures implied an index of 27,360, compared with Friday’s close of 27,567.

China’s central bank went its own way and cut the repo rate by 10 basis points to support the ailing economy and released the blue chips. (.CSI300) It increased by 0.1%.

HURRY TO SEE

Bank of America’s latest fund manager survey shows global equity allocations at an all-time low.

“However, with both U.S. earnings and the unemployment rate hovering at 4-5%, weak sentiment is not enough to prevent the S&P from hitting new lows for the year,” BofA analysts warned in a note.

“Our suite of 38 property growth indicators paints a bleak picture for global growth, but we are looking at one of the most aggressive tightening episodes in history, with 85% of global central banks in tightening mode.”

A hike is expected, with most banks meeting this week – from Switzerland to South Africa – dividing markets on whether the Bank of England will go with 50 or 75 basis points. read more

“The latest UK retail sales data supports our view that the economy is already in recession,” said Jonathan Petersen, chief market economist at Capital Economics.

“So despite sterling hitting a new multi-decade low against the dollar this week, the relative strength of the US economy tells us the pound will remain under pressure.”

Sterling was stuck at $1.1396 last week and hit a 37-year low of $1.1351.

One exception is the Bank of Japan, which has so far shown no sign of abandoning its easy yield curve policy, despite the sharp fall in the yen. read more

The dollar hit 143.25 yen on Monday, retreating from a 24-year high of 144.99 amid warnings of increasingly tight intervention by Japanese policymakers.

The euro held steady at $0.9991, off a recent low of $0.9865, thanks to increasingly hawkish comments from the European Central Bank.

Against a basket of currencies, the dollar rose 0.3% to 109.88, not far off the two-decade high of 110.79 it touched earlier this month.

The rising dollar and yields were a drag on gold, which rose to $1,668 an ounce last week after hitting lows not seen since April 2020.

Oil prices were trying to rally on Monday, having fallen nearly 20% so far this quarter on worries about demand linked to slowing global growth.

Brent rose 50 cents to $91.85, and US crude oil rose 33 cents to $85.44/barrel.

Reporting by Wayne Cole; Edited by Sam Holmes and Christian Schmollinger

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