Stocks in Asia Set for More Pressure From Fed Path: Markets Wrap

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(Bloomberg) — Stocks in Asia look set to drop Wednesday on the prospect of continued aggressive Federal Reserve monetary tightening and as traders assess a possible uptick in tension between China and Taiwan.

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Futures were in the red for Japan and Australia and shed more than 2% for Hong Kong. The latter may reflect the risk of mounting friction between Beijing and Taipei after Taiwanese soldiers fired shots to ward off civilian drones. US-listed Chinese equities fell Tuesday amid those developments.

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Contracts for the S&P 500 and tech-heavy Nasdaq 100 fluctuated after Wall Street shares hit a one-month low. Robust US labor demand and consumer confidence data added to the case for sharp interest-rate hikes to tackle inflation. Fed officials reiterated their determination to curb price pressures.

A dollar gauge was firm and shorter-maturity Treasuries dipped, deepening a yield curve inversion that points to fears that the Fed will trigger a recession. In commodities, oil held a slide to trade around $92 a barrel. Iraq said exports haven’t been affected by violent clashes, soothing concerns about supply.

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Market bets on a shallower trajectory for Fed tightening are receding, raising the prospect of more losses for stocks and bonds in an already difficult year. Investors are scouring incoming data for clues on the policy path, with August US jobs figures on Friday the next key report.

“What’s clear is that predicting this market is not clean cut,” Angeline Newman, a managing director at UBS Global Wealth Management, said on Bloomberg Television. “We are living in a world where conflicting economic signals are making the path of monetary policy very difficult to determine.”

Fed officials again stressed their commitment to defeating inflation while remaining vague on how big their policy move will be next month. 

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New York Fed chief John Williams said rates will need to be held in restrictive territory for “some time,” adding that this meant through 2023 — the latest official to push back on financial-market expectations of cuts later next year.

Investors are also contending with a European energy crisis that threatens to drive the region into recession as well as China’s property slump and Covid curbs. Bloomberg Economics expects purchasing managers’ indexes to signal manufacturing contraction in China.

Here are some key events to watch this week:

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Will Chinese sovereign bonds outperform Treasuries? China is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.

Some of the main moves in markets:

Stocks

Currencies

Bonds

Commodities

• West Texas Intermediate crude was at $91.94 a barrel, up 0.3%
• Gold was at $1,723.33 an ounce