(Bloomberg) — Asian stocks dropped Friday after a raft of Federal Reserve officials signaled they will combat inflation aggressively and the Nasdaq 100 fell to its lowest level since October.
Australian, Japanese and Korean equities sank. Contracts in the U.S were little-changed after American stocks tumbled Thursday, led by technology companies — seen as most sensitive to higher rates — along with crude oil, copper and Bitcoin. Treasury yields rose.
Fed Governor Lael Brainard said officials could boost rates as early as March to ensure that generation-high price pressures are brought under control. Fed Bank of Philadelphia President Patrick Harker favors a March liftoff and three or four hikes for 2022. His Chicago counterpart Charles Evans — who sees a similar number of increases this year — said he couldn’t judge the likelihood of the first raise taking place in two months’ time.
Rising rates — an upshot of strong economic growth — could drive investors toward value stocks, which tend to be more cyclical and offer near-term cash flows.
“We are in a position where much that has been positive for equities is maybe moving to neutral or negative, and while there are still few alternatives, it makes the equity market ripe for more fluctuations over the next few months as we see how the data shake out and how the Fed reacts,” said Sarah Hunt, portfolio manager at Alpine Woods Capital Investors.
In addition, earnings may come into play: the valuation gap between Big Tech and the rest of the market is likely to narrow as the pace of earnings-per-share growth remains below that of the S&P 500 into the fourth quarter, according to Gina Martin Adams, chief equity strategist at Bloomberg Intelligence.
Prices paid to U.S. producers decelerated in December as two key drivers of inflation in 2021 — food and energy — declined from a month earlier, representing a respite in the recent trend of sizable increases. At the same time, producers continued to face a variety of materials shortages, limited labor supply and transportation bottlenecks that sent prices soaring last year.
Read: U.S. Initial Jobless Claims Rose to Highest Since Mid-November
Traders also assessed news a divided Supreme Court blocked the centerpiece of President Joe Biden’s push to get more people vaccinated, rejecting a rule that would have required 80 million workers to get shots or periodic tests.
Here are some key events coming up:
- Bank of Korea policy decision and briefing on Friday.
- Wells Fargo, Citigroup, JPMorgan due to report earnings on Friday.
- U.S. business inventories, industrial production, University of Michigan consumer sentiment, retail sales on Friday.
- New York Fed President John Williams speaks Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets as of 9:40 a.m. in Tokyo:
Stocks
- S&P 500 futures were little changed. The gauge fell 1.4% on Thursday
- Nasdaq 100 futures were flat. The index fell 2.6% on Thursday
- S&P/ASX 200 dropped 0.9%
- Topix slid 1.4%
- Kospi declined 0.7%
- Euro Stoxx 50 futures dropped 0.9%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was flat at $1.1454
- The Japanese yen was at 114.14 per dollar
Bonds
- The yield on 10-year Treasuries rose two basis points to 1.72%
- Australia’s 10-year yield rose about one basis point to 1.87%
Commodities
- West Texas Intermediate crude declined 0.5% to $81.74 a barrel
- Gold fell 0.1% to $1,820.13 an ounce
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