SYDNEY- Asian shares fell on Monday while the dollar drifted higher at the start of a hectic week, as markets awaited a flurry of rate decisions from the US Federal Reserve, the European Central Bank and others.
MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1 percent, after rising 1.3 percent the previous week, buoyed by optimism that China is finally opening up its economy with the dismantling of its zero-COVID policy.
Japan’s Nikkei eased 0.3 percent. The S&P 500 futures dipped 0.2 percent and Nasdaq futures dropped 0.3 percent.
In China, blue-chip shares were 0.5 percent lower, while Hong Kong’s Hang Seng index was down 1 percent, as investors focused on a rapid wave of COVID-19 infection disrupting the economy.
On Friday, Wall Street dropped, Treasury yields advanced and the dollar pared earlier losses.
A US consumer price index (CPI) report on Tuesday will set the tone for markets for the week. Economists expect core annual inflation to ease to 6.1 percent in November, compared with a rise of 6.3 percent seen in the previous month.
Risk could be on the upside, after data on Friday showed producer prices had increased faster than expected, fueling concerns the CPI report may indicate inflation is sticky and interest rates may have to stay higher for longer.
“This week, markets could go anywhere …. A hotter CPI — say 6.4 percent (and above) and a hawkish set of dots from the Fed and statement from Powell could see funds call it a day for 2022 — risk bleeds into 2023 and funds buy back USD shorts,” said Chris Weston, head of research at Pepperstone.
“It would be a big surprise if we didn’t see the Fed step down to a 50bp hike …. We also want to understand if Jay Powell opens the door to a slowdown to a 25bp hiking pace from February – again, while in line with market pricing, this could be taken that we’re closer to the end of the hiking cycle and is a modest USD negative.”
The Federal Reserve is widely expected to raise rates by 50 basis points on Wednesday at its last meeting of 2022, though focus will also be on the central bank’s updated economic projections and Fed Chair Jerome Powell’s press conference.
