Asian stock markets: https://tmsnrt.rs/2zpUAr4
S&P 500 futures inch up after slide, euro futures ease
Fed Powell says he’s nowhere near stopping hiking
The increase of the dollar pair after the meeting with the yield of the State Treasury
By Wayne Cole
SYDNEY, Nov 3 (Reuters) – Asian shares fell on Thursday after the U.S. Federal Reserve changed its outlook for tightening from short and sharp to long and high, ending any thoughts of a short-term pause.
Investors were initially happy that the Fed at least opened the door to a slowdown in growth after raising interest rates by 75 basis points to 3.75-4.0%, noting that monetary policy was operating with a lag.
But Chairman Jerome Powell dampened sentiment, saying it was “very early” to think about a suspension and that the peak rate was likely to be higher than previously expected.
“The Fed is now more comfortable with smaller rate hikes over a longer period of time than more hikes now,” NatWest Markets analyst Brian Daingerfield said.
“A boost cycle is officially a marathon now, not a sprint.”
Futures were now split on whether the Fed would move by 50 or 75 basis points in December, possibly raising the top of rates to 5.0-5.25% by May. They also mean that the rate cut until December 2023 is small.
“Powell’s comments reinforced our expectations that the December dot chart will show a higher average funding cap rate forecast and that the FOMC will eventually increase after next February,” Goldman Sachs analysts wrote.
“We see risks to our top funds rate forecast of 4.75-5% as they are on the upside.”
It wasn’t all what the stock markets wanted to hear, and Wall Street fell sharply after Powell’s comments. S&P 500 futures were up 0.1% in early Thursday trading, while Nasdaq futures were up 0.2%.
EUROSTOXX 50 futures trailed overnight and fell 0.8%, while FTSE futures lost 0.6%.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.5%, with South Korea down 0.6%.
Japan’s Nikkei was closed for the holiday, but futures traded about 300 points below Wednesday’s cash close.
China’s blue chips fell 0.7% after a survey of the services sector showed a slowdown in activity due to Covid-19 restrictions, with the Caixin PMI slipping to 48.4.
BoE ON THE VIEW
Two-year Treasury yields rose to 4.63% as the curve flattened bearish, and the spread to 10-year notes is near the widest since the turn of the century.
Attention now turns to the US ISM services survey later Thursday and Friday’s payrolls report, where any upside surprise is likely to boost the outlook for Fed hawks.
The Bank of England will also take center stage. The market has fully priced in a rate hike of 75 basis points to the highest level since late 2008, 3.0%.
“There will be interest in the BoE’s new CPI and GDP forecasts, with the latter likely to point to a deeper and longer recession in 2023 and 2024,” said Ray Attrill, head of FX strategy at NAB.
The gloomy outlook could put more pressure on the pound, which settled at $1.1415 after retreating overnight from a peak of $1.1564.
The U.S. dollar was widely bid for after Powell’s frenetic shift before it started to take gains in Asia. The dollar index was at 111.840 after rebounding from an overnight low of 110.400.
The euro was a fraction firmer at $0.9810, down from an overnight high of $0.9976. The dollar gave back some of the yen’s gains to 147.24, but was still off Wednesday’s low of 145.68.
The rebound in the dollar and yields weighed on gold, which was stuck at $1,637 an ounce after reaching $1,669 overnight at one stage.
Oil prices also didn’t like the dollar’s rally, with Brent down 46 cents to $95.70 a barrel, while US crude fell 64 cents to $89.36.
The good news for bread lovers is that wheat futures fell sharply overnight after Russia said it would rejoin a deal to export grain from war-torn Ukraine.
(Reporting by Wayne Cole; Editing by Lincoln Feast and Ana Nicolasi da Costa)