Caution Shadows Asia Open Amid Risk of Volatility: Markets Wrap

(Bloomberg) — Stocks are set for a cautious start in Asia on Monday after a weekend of white-knuckle cryptocurrency swings highlighted the fragile sentiment in markets under a Federal Reserve determined to tame inflation.

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Equity futures rose for Japan but dipped for Australia and Hong Kong, while S&P 500 and Nadsaq 100 contracts edged up in early Asian trading.

Bitcoin climbed 16% Sunday to retake the $20,000 level and recoup losses from a steep Saturday swoon. A volatile crypto slump has become emblematic of the pressure on a range of assets as sharp Fed interest-rate hikes sap liquidity.

The dollar was mixed against key peers, while crude oil climbed. There’s no cash Treasuries trading as Wall Street is closed Monday for a holiday.

In China, Bloomberg Economics expects banks to leave loan prime rates unchanged. Chinese stocks have recently emerged as a bright spot amid the global equity rout on the nation’s prevailing pledge of policy support to counter a growth slowdown.

Volatility is likely to continue to whipsaw markets as inflation remains elevated and investors fret that assets have further to decline to price in aggressive monetary tightening in a range of nations.

“By leaving monetary tightening so late, central banks may be forced to slam on the brakes,” Eric Robertsen, chief strategist at Standard Chartered Bank Plc, wrote in a note. “Recession risks are rising, putting further downward pressure on risky assets.”

Fed Views

In the latest Fed commentary, Governor Christopher Waller said he would support another 75-basis-point rate increase at the central bank’s July meeting should economic data come in as he expects.

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“The Fed is ‘all in’ on re-establishing price stability,” Waller said Saturday in prepared remarks for a conference.

Bank of Cleveland Fed President Loretta Mester said the risk of a recession in the US economy is increasing, and that it will take several years to return to the central bank’s 2% inflation goal.

Fed Chair Jerome Powell will likely be questioned on what a more aggressive Fed could mean for jobs and the economy when he appears before US lawmakers Wednesday and Thursday.

“I expect that data over the coming months will indeed point to the need for a greater degree of tightening, and market prices will need to adjust,” Sonal Desai, chief investment officer at Franklin Templeton Fixed Income, said in a note.

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 0.4% as of 7:10 a.m. in Tokyo. The S&P 500 rose 0.2% Friday

  • Nasdaq 100 futures rose 0.4%. The Nasdaq 100 rose 1.2% Friday

  • Nikkei 225 futures added 0.4%

  • Australia’s S&P/ASX 200 Index futures fell 0.3%

  • Hang Seng Index futures lost 0.4%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.8% Friday

  • The euro fell 0.2% to $1.0481

  • The Japanese yen was at 135.16 per dollar, down 0.1%

  • The offshore yuan was at 6.7144 per dollar, down 0.1%

Bonds

Commodities

  • West Texas Intermediate crude rose 1.2% to $110.86 a barrel

  • Gold was at $1,836.25 an ounce, down 0.2%

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