SYDNEY – Asian markets began volatile on Monday as US stock futures skidded early on rate concerns, while a tighter lockdown in Shanghai stoked concerns about global economic growth and a possible slowdown.
“A series of rate hikes and intensified communications came against a backdrop of declining Chinese and European activity, new plans for Russian energy sanctions and supply-side pressures,” warned Barclays analysts.
“This creates the bleak prospect of persistent inflation forcing central banks to raise rates despite increasingly slow growth.”
China’s zero COVID policy left no stone unturned as Shanghai tightened a city-wide COVID lockdown of 25 million residents.
S&P 500 stock futures were down 0.6%, while Nasdaq futures lost 0.7%. US 10-year bond futures also lost 8 ticks.
Nikkei futures were trading at 26,745 against Friday’s cash close of 27,003.
Investors were also tense ahead of Wednesday’s US consumer price report, where inflation is projected to moderate only marginally, and certainly nothing to stop the Federal Reserve from raising at least 50 basis points in June. Is. Indeed, core inflation is actually rising to 0.4% in April, up from 0.3% last month, even though the annualized momentum has slowed slightly due to base effects.
“In Q1, the annualized monthly change in core CPI was 5.6%,” noted analysts at ANZ. “This is too much for the Fed and we think the FOMC will not relax about inflation until the core numbers are capped at around 0.2% m/m on an ongoing basis.
“The Fed is not the only central bank facing inflationary pressures. Increasingly, guidance from the ECB is becoming much more stringent.”
Fed funds futures are priced for rates reaching 1.75-2.0% in July, up from the current 0.75-1.0%, and climbing to around 3% by the end of the year.
The diary is filled with Fed speakers this week, which will give them plenty of opportunity to keep up with the hawkish chorus.
The aggressive rate outlook saw the US dollar scale a 20-year high at 104.070 in the basket of majors last week, and it was last trading firm at 103.760.
The euro was stuck at $1.0534 and slightly above its recent low of $1.0481, while the dollar was heavily controlled against the Japanese yen at 130.72.
Oil prices fell slightly in early trade as Group of Seven (G7) nations committed on Sunday to ban or phase out restrictions on imports of Russian oil.
Russia celebrated Victory Day on Monday amid speculation that President Vladimir Putin may declare war on Ukraine to deplete reserves.
Brent was last quoted 75 cents lower at $111.64, while US crude was down 78 cents to $108.99.
Gold was dormant at $1,876 an ounce, having struggled to build any traction recently as a safe haven.
(Editing by Sam Holmes)
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