SYDNEY, Dec 12 (Reuters) – Asian shares fell and the dollar strengthened at the start of a busy week on Monday as markets awaited interest rate decisions from the U.S. Federal Reserve, the European Central Bank and others.
Caution is expected to spill over into European markets, with pan-regional Euro Stoxx 50 futures down 0.5%, German DAX futures down 0.5% and FTSE futures down 0.2%.
Both S&P 500 futures and Nasdaq futures were down 0.1%.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) fell 1.2%, erasing almost all of the previous week’s gains on optimism that China will finally open its economy by scrapping its zero-covid-19 policy.
Japan’s Nikkei (.N225) fell 0.2%.
Chinese blue chips fell 0.9% and Hong Kong’s Hang Seng index (.HSI) fell 2.2%, as investors’ focus shifted to a surge in infections that undermined the COVID-19 curbs.
Wall Street fell on Friday, as Treasury yields rose and the dollar pared earlier losses.
Tuesday’s US consumer price index (CPI) report will set the tone for the week for markets. Economists expect core annual inflation to ease to 6.1% in November, compared with a 6.3% rise in the previous month.
Risks may rise after Friday’s data showed producer prices rose faster than expected, the CPI report suggested inflation is sticky and interest rates may need to stay higher for longer.
“A warmer CPI – say 6.4% (and above) and from the Fed and Powell’s statement, funds may call it a day for 2022 – risk diminishes through 2023 and funds will be shorting USD “recovers,” said Chris Weston, head of research at Pepperstone.
“It would be a big surprise if we didn’t see the Fed go for a 50bp rate hike…. We also want to understand that Jay Powell is opening the door to a slowdown to a 25bp hiking pace from February – again, according to market prices, this is the end of the hiking cycle.” may recognize that we are closer to the end and a modest US dollar negative.”
The Federal Reserve is expected to raise rates by 50 basis points at its final meeting of 2022 on Wednesday, although the focus will be on the bank’s updated economic forecasts and Fed Chairman Jerome Powell’s press conference.
Kevin Cummins, chief US economist at NatWest, said any surprise in the CPI report was unlikely to sway the Fed from a 50 basis point rate hike, although that would play a larger role in the policy statement and the tone of Powell’s press conference. .
“As is often the case, updated spot area and terminal (peak) rate estimates will be more critical to the policy outlook than this week’s near-term action — a topic that will be the focus of Chairman Powell’s prepared remarks and press conference,” Cummins said.
In addition to the Fed, the ECB and the Bank of England are also set to announce rate hikes on Thursday as policymakers continue to hold off on growth to curb inflation.
In currency markets, the U.S. dollar edged up 0.1% against a basket of currencies to settle at 105.17, though not far from a five-month low of 104.1 a week ago.
Sterling fell 0.3% to $1.223, while the Australian dollar fell 0.3% to $0.6759.
Treasury yields were largely flat on Monday. The yield on the economic 10-year Treasury Note was held at 3.5600%, compared to a close of 3.5670% in the US. The two-year yield rose slightly to 4.338% from 4.330% in the US.
Oil prices have been buoyed by uncertainty over the restart of a key pipeline supplying the United States and Russia’s threat to cut production in response to a Western price cap on its exports. .
Brent oil futures rose 0.6% to $76.58/barrel, while US West Texas Intermediate rose 0.8% to $71.62/barrel.
Spot gold fell 0.6% to $1,785.78/oz.
Edited by Lincoln Feast, Bradley Perrett and Sam Holmes
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