April 11, 2022: Asian stocks fell Monday ahead of a week of central bank meetings and US inflation data, as the euro made gains on relief that the far right failed to win the first round of the French presidential election.
French leader Emmanuel Macron and far-right challenger Marine Le Pen qualified on Sunday for what promises to be a hard-fought second round of the presidential election on April 24.
A Le Pen victory could send shockwaves through France and Europe in a manner similar to the UK’s 2016 vote to leave the European Union (EU). The first-round result was close enough to leave the euro a little firmer at $1.0888, after an initial pop-up to $1.0950.
Equity markets sentiment was cautious, with the broadest MSCI index of Asia-Pacific equities outside of Japan falling 1.0%.
Japan’s Nikkei fell 0.6%, after losing 2.6% last week, while Chinese blue chips lost 1.8%.
S&P 500 stock futures eased 0.4% and Nasdaq futures 0.6%. EUROSTOXX 50 futures lost 0.4% and FTSE futures 0.3%.
Earnings season kicks off this week with JP Morgan, Wells Fargo, Citi, Goldman Sachs and Morgan Stanley all reporting.
Despite the early losses, Wall Street has performed surprisingly well in the face of a vicious bond sell-off, pushing 10-year Treasury yields up 31 basis points last week to the latest at 2.72%. [US/]
Markets have rushed to price in the risk of ever-larger rate hikes by the Federal Reserve, with futures implying a 50 basis point increase in both May and June meetings.
BofA US economist Ethan Harris now expects a half-point rise at each of the next three meetings and a cycle peak of about 3.25-3.50%.
“If inflation appears to be falling below 3%, then our current call should be hawkish enough,” Harris said in a note. Conversely, if inflation remains above 3%, the Fed will have to increase until growth is close to zero, at the risk of a recession.
All of this underscores the importance of Tuesday’s US consumer price report, where the median forecast is a 1.2% rise in the stratospheric value, pushing annual inflation to a dazzling 8.5%.
China’s inflation numbers surprised on the high side on Monday and, while relatively modest at 1.5% yoy in March, they still dented hopes for an aggressive policy easing from Beijing.
Inflation will also take center stage at the European Central Bank meeting on Thursday, where there is a risk of an aggressive slant on the statement.
“Inflation is well above the level the ECB had expected just a month ago,” TD Securities analysts noted. but not quite committed to a June walk.”
Continuing the theme of tightening, central banks in Canada and New Zealand could raise interest rates by 50 basis points during their policy meetings this week.
Due to the excessive rise in government bond yields, the dollar index is in the top 100 for the first time since May 2020, and was last listed at 99.858.
The biggest casualty has been the yen, as the Bank of Japan remains determined to keep its policy super-accommodating and bond yields are close to zero. The dollar rose to 124.81 yen, after rising 1.5% last week to just below its recent high of 125.10.
In commodity markets, thermal coal was the notable winner last week, rising nearly 13% after the EU banned imports of Russian coal.
Gold gained 1.1% weekly, but was undermined by the massive surge in bond yields, most recently holding steady at $1,944 an ounce.
Oil prices continued to be under pressure after world consumers announced plans to release crude oil from strategic stockpiles and as China’s lockdowns continued.
Beginning Monday, Brent lost $2.05 to $100.73, while US crude lost $2.10 to $96.16.
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