Asian markets have started the week on shaky ground as US stock futures took an early skid on rate worries, while a tightening lockdown in Shanghai stoked concerns about global economic growth and possible recession.
“A series of rate hikes and hawkish communication came against a backdrop of plummeting Chinese and European activity, new plans for Russian energy bans and continued supply-side pressures,” warned analysts at Barclays.
“This creates the gloomy prospect of persistent inflation forcing central banks to hike rates despite sharply slowing growth.”
There was no let up in China’s zero-COVID policy, with Shanghai tightening its city-wide lockdown of 25 million residents.
Speculation Russian President Vladimir Putin might formally declare war on Ukraine in order to call up reserves during his speech at Victory Day celebrations in Moscow also hurt market sentiment.
S&P 500 stock futures led the way with a drop of 1.0 per cent, while Nasdaq futures shed 0.9 per cent.
US 10-year bond yields edged up to a fresh top at 3.15 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3 per cent, and Japan’s Nikkei 1.2 per cent.
Investors were also tense ahead of the US consumer price report due on Wednesday, when only a slight easing in inflation is forecast, and certainly nothing to prevent the Federal Reserve from hiking the cash rate by at least 50 basis points in June.
“In Q1, the annualised monthly change in core CPI was 5.6 per cent,” noted analysts at ANZ.
“That is too high for the Fed and we think the FOMC won’t be relaxed about inflation until the core number moderates to around 0.2 per cent m/m on a sustained basis.
“The Fed is not the only central bank facing inflation pressures. Increasingly, the guidance from the ECB is becoming a lot more hawkish.”
Fed fund futures are priced for rates reaching 1.75-2.0 per cent in July, from the current 0.75-1.0 per cent, and climbing all the way to around three per cent by the end of the year.
The diary is full of Fed speakers this week, which will give them plenty of opportunity to keep up the hawkish chorus.
The aggressive rate outlook saw the US dollar scale 20-year highs on a basket of majors last week at 104.070, and it was last trading firm at 103.820.
The euro was stuck at $US1.0530 and just a whisker above its recent lows of $US1.0481, while the US dollar was very much in control against the Japanese yen at 130.88.
Oil prices eased back a little in early trade as G7 nations committed on Sunday to ban or phase-out imports of Russian oil.
Brent was last quoted 63 cents lower at $US111.76, while US crude lost 61 cents to $US109.16.
Gold was idling at $US1,877 an ounce, having struggled to make any traction as a safe haven recently.