(Bloomberg) — Asian stocks looked set for gains Friday after their U.S. peers steadied as investors mulled the Federal Reserve’s latest signal it will move aggressively if inflation remains elevated. Treasuries extended a decline.
Futures pointed higher in Japan and shares climbed in Australia following Thursday’s selloff. U.S. futures saw modest gains. The S&P 500 closed little changed after attempting to rebound from a near 2% drop Wednesday sparked by Fed meeting minutes that suggested the central bank is ready to raise rates sooner and higher than previously expected. Treasury yields continued to climb, although the velocity of their ascent eased with the 10-year rate near 1.73%.
The dollar was slightly stronger, while oil climbed to a seven-week high on supply constraints. The yen held overnight gains and the yuan retreated. Gold fell and Bitcoin remained under pressure.
An overtly hawkish stance from the Fed has roiled financial markets at the start of a new year, with investors reassessing how to price assets in an environment of rising interest rates. The removal of crisis-era accommodation marks a shift not seen in at least three years, a time that also saw a spike in volatility.
“We knew coming into 2022 that the Fed was going to be a creator of volatility within the market and we’re seeing that right out of the gate at the start of the year,” Lindsey Bell, chief markets and money strategist at Ally, said by phone. “The good news is that today things seem to be stabilizing a little bit after yesterday’s knee-jerk reaction.”
Comments by regional Fed presidents provided some additional insight Thursday as traders attempted to predict a possible schedule for tightening. St. Louis Fed President James Bullard, a more hawkish policy maker, said in a speech the central bank could raise its target interest rate as soon as March. Meanwhile, San Francisco Fed President Mary Daly said at a virtual event that trimming the Fed balance sheet would come after normalizing the Fed funds rate.
Nicholas Colas, co-founder of DataTrek Research, urged investors to tread “very carefully” the next few days.
“Markets are concerned that we’ve never seen the Federal Reserve both lift interest rates off zero and reduce the size of its balance sheet at the same time,” he wrote. “We’re not predicting a meltdown, but we get why the market swooned.”
U.S. jobless claims ahead of Friday’s payrolls report did little to change the market mood. The claims rose to 207,000 last week, the release showed, but stayed within the range of forecasts by 30 economists.
What to watch this week:
- U.S. employment data Friday
- Fed’s Daly discusses monetary policy on a panel Friday
- ECB’s Schnabel speaks on a panel Saturday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.2% at 8:05 a.m. Tokyo time. The S&P 500 closed little changed
- Nikkei 225 futures rose 0.7%
- S&P/ASX 200 climbed 0.7%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1% Thursday
- The euro fell 0.1% to $1.1299
- The British pound fell 0.2% to $1.3535
- The Japanese yen rose 0.2% to 115.86 per dollar
- The offshore yuan fell 0.3% to 6.3945 per dollar
Bonds
- The yield on 10-year Treasuries advanced two basis points to 1.72% Thursday
Commodities
- West Texas Intermediate crude rose 0.2% to $79.63 a barrel
- Gold was flat at $1,791 an ounce
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