Asia shares in cautious temper, oil retains climbing

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A man wearing a mask walks by the Shanghai Stock Exchange building in the Pudong financial district in Shanghai, China amid an outbreak of a new coronavirus that hits the country, 3 February 2020. REUTERS/Aly Song

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  • Asian Stock Markets:
  • Nikkei slips 0.5%, S&P 500 futures down 0.3%
  • Focus on central bank meetings in UK and EU, US jobs
  • Dollar keeps gaining, oil keeps rising

SYDNEY, Jan 31 (Reuters) – Asian stock markets got off to a cautious start into a week that is likely to see a rise in UK interest rates and mixed reports on US jobs and manufacturing, while rising oil prices are raising concerns about inflation strengthened.

Data released on Sunday showed China’s factory activities slowed in January as a resurgence of COVID-19 cases and strict lockdowns impacted production and demand. Continue reading

The standoff over Ukraine remains a thorn in the side of the market amid concerns that a Russian invasion would also disrupt Western Europe’s vital gas supplies. Continue reading

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The Lunar New Year holiday made for weak conditions, with MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) slipping 0.1% in weak trading.

Japan’s Nikkei (.N225) slipped 0.3% as industrial production and retail sales data came in below forecasts. S&P 500 futures and Nasdaq futures both fell 0.3%, erasing part of Friday’s rally.

The Bank of England is likely to hike rates again this week, continuing the global trend towards tighter monetary policy. The European Central Bank is also meeting but is expected to stick to its argument that inflation will fall over time. Continue reading

Markets have priced in five Federal Reserve interest rate hikes to 1.25% this year, although investors still expect interest rates to remain at a historically low level of 1.75-2.0%.

Analysts at BofA think this isn’t nearly restrictive enough.

“We caution that markets undervalued the Fed’s rate hikes early in the last two rate hike cycles, and we believe this will be the case again,” said BofA Chief Economist Ethan Harris.

“We expect the Fed to hike rates by 25 basis points at each remaining meeting this year beginning in March, for a total of seven rate hikes and four more hikes next year,” he added. “That would push the final interest rate to 2.75-3.00% by the end of 2023, which should slow growth and inflation.”

The Fed’s schedule is sparse this week with only three regional presidents scheduled to speak, but there is plenty of data highlighted by the ISM manufacturing and services readings and January jobs report.

Amid a spike in coronavirus cases and inclement weather, payroll headlines are expected to be weak. The median forecast is for a rise of just 155k, while forecasts range from a 385k gain to a 250k decline.

“We expect non-farm payrolls to rise by just 50,000 in January and the unemployment rate to remain steady at 3.9%,” Barclays analysts said in a statement.

“We see downside risk to our forecast given the 8.8 million adults who did not work to care for someone sick or were sick themselves in the week of January 11.”

The Fed’s hawkish turn has seen US 10-year Treasury yields rise 27 basis points to 1.78% this month, making bonds relatively more attractive relative to equities and particularly growth stocks with stretched valuations.

It has also strengthened the US dollar, which is up 1.7% this month against a basket of its main peers to its highest level since July 2020 at 97.441.

The euro lost 1.7% in the past week alone to its lowest level since June 2020 and last traded at $1.1151. The dollar actually strengthened against the safe-haven yen, rising 1.3% to 115.27 yen last week.

Higher yields were a deadweight for non-yielding gold, and the metal stalled at $1,789 an ounce after shedding 2.4% last week.

Oil prices nearly hit a seven-year high after rising for six consecutive weeks as geopolitical tensions exacerbated concerns over energy shortages.

Brent rose 94 cents to $90.97 a barrel, while US crude rose 89 cents to $87.71 a barrel.

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Reporting by Wayne Cole; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.