Markets drop as traders nervously await US jobs data

HONG KONG - Asian stocks mostly fell Thursday ahead of key US jobs data at the end of the week, after Federal Reserve boss Jerome Powell warned it could ramp up its pace of interest rate hikes if the economy shows no sign of slowing.

Markets have been falling since the start of February as a string of forecast-beating indicators have shattered hopes the US central bank could pause its tightening campaign soon, and even cut borrowing costs by the year's end.

And on Tuesday, Powell delivered another blow by telling lawmakers that with inflation still stubbornly high and the jobs market tight, officials were prepared to hike by half a percentage point at their next meeting as they struggle to control prices.

That would be twice the last increase, which followed a period of bumper increases last year.

The prospect of rates going ever higher -- with some predicting six percent from the current 4.5-4.75 percent -- has ramped up fears the world's top economy could tip into recession. Analysts pointed out that bond markets suggest a contraction is on the cards.

He reiterated monetary policymakers' determination to quell inflation on Wednesday in a second day of testimony to US lawmakers, though he did say the decision would be driven by data, with a close eye on the labour market.

"If -- and I stress that no decision has been made on this -- but if the totality of the data were to indicate that faster tightening is warranted, we'd be prepared to increase the pace of rate hikes," he said.

"Inflation is coming down but it's very high," he added. "Some part of the high inflation that we are experiencing is very likely related to a very tight labour market."

Meanwhile, the Fed's "beige book" survey of economic conditions said "inflationary pressures remained widespread" and that "labour market conditions remained solid".

RECESSION FEARS HIT OIL

Powell's comments "helped briefly pull yields lower and pull the US dollar off its highs for the day, but the reality remains that markets are slowly starting to come to the realisation that rates are likely to remain higher for longer and that the terminal rate is also likely to settle at a much higher level", said CMC Markets' Michael Hewson.

Traders are now awaiting Friday's non-farm payrolls figures for February, with a strong reading likely to put pressure on the Fed to hike by 50 basis points. 

In a worrying sign for risk appetite, a report on the private sector showed a bigger-than-expected jump in jobs last month -- double January's number -- while wage growth remained solid.

After a tepid day on Wall Street, Asian markets mostly edged down.

Hong Kong was flat while Shanghai fell with Singapore, Seoul, Wellington, Taipei, Mumbai and Manila. London, Paris and Frankfurt followed suit at the open.

Tokyo, Sydney, Bangkok and Jakarta rose.

Growing concerns about rising rates causing a possible recession were keeping pressure on oil prices, which extended Wednesday's losses.

"Crude prices can't shake off fears that the Fed is going to send the US economy into a bad recession," said OANDA's Edward Moya, adding that data showing a small dip in US stockpiles was unable to shake off the unease.

"The amount of crude demand uncertainty over the short-term is keeping oil prices heavy. WTI crude looks like it will be stuck between the mid-$70s and the low $80s until we have a better idea on what type of recession the Fed will trigger."

Key figures around 0820 GMT

Tokyo - Nikkei 225: UP 0.6 percent at 28,623.15 (close)

Hong Kong - Hang Seng Index: DOWN 0.6 percent at 19,925.74 (close)

Shanghai - Composite: DOWN 0.2 percent at 3,276.09 (close)

London - FTSE 100: DOWN 0.3 percent at 7,909.47

Euro/dollar: UP at $1.0554 from $1.0547 on Wednesday

Pound/dollar: UP at $1.1847 from $1.1845

Euro/pound: UP at 89.09 pence from 89.01 pence

Dollar/yen: DOWN at 136.83 yen from 137.43 yen 

West Texas Intermediate: DOWN 0.2 percent at $76.51 per barrel

Brent North Sea crude: DOWN 0.2 percent at $82.51 per barrel

New York - Dow: DOWN 0.2 percent at 32,798.40 (close)

Agence France-Presse

Asian markets extend new year rally on China, Fed hopes

HONG KONG - Asian markets resumed their strong start to the year Monday, tracking a surge on Wall Street fuelled by optimism over China's reopening and hopes the Federal Reserve will slow its pace of interest rate hikes.

All three main indexes in New York soared more than two percent Friday after a closely watched report showed a forecast-busting rise in new jobs but a slowdown in wages growth.

That came as separate figures showed a shock contraction in the crucial services sector -- the first since spring 2020 at the height of the pandemic.

The readings, while suggesting the world's top economy was showing signs of weakness, were seized on by traders hopeful that the Fed will begin to temper its monetary tightening campaign.

Investors are now betting officials will lift borrowing costs about 25 basis points at their next meeting at the end of the month.

However, policymakers have warned that rates will continue to go up as they aim to bring decades-high inflation under control, with some saying they will not likely be cut until 2024.

In a further sign of hope, data Friday showed eurozone inflation slowed for a second month in a row in December, to 9.2 percent -- the first time in single digits since September.

"If Friday's price action tells us anything it's that investors really want to believe the peak inflation narrative that has helped support the rebound in equity markets that we've seen so far this year," said CMC Markets analyst Michael Hewson.

Asian equities started the day on the front foot, with Hong Kong sharply higher and Shanghai also well up.

Traders in the two cities have been on a high at the start of the year as they welcome China's emergence from zero-Covid as well as pledges to help the struggling economy, particularly the property sector.

The borders between Hong Kong, Macau and China were partially opened Sunday, providing a much-needed boost to Hong Kong. Macau-based casinos surged on the move.

"The U-turn in China's Covid policy is consequential to growth and equity returns," said SPI Asset Management's Stephen Innes.

"So with the lifting of border restrictions between China/Hong Kong/Macau and international travel reopening, local travellers are not only in a celebratory mood but also investors."

Sydney, Seoul, Singapore, Taipei, Manila, Mumbai, Bangkok and Wellington also enjoyed a strong start to the week. Tokyo was closed for a holiday.

London and Frankfurt rose at the open but Paris dipped.

Easing expectations about US rates were also weighing on the dollar, which extended Friday's retreat against its major peers.

Oil prices rose, having plunged around eight percent last week on demand concerns caused by a spike in Covid infections in China as containment measures are lifted.

However, while the commodity is now at more than a one-year low, observers say it could rally again as China reopens and the global economy recovers.

"I think oil will go upwards of $140 a barrel once Asia fully reopens, assuming there will be no more lockdowns," said hedge fund manager Pierre Andurand. He added that the "market is underestimating the scale of the demand boost that it will bring".

Key figures around 0820 GMT 

Hong Kong - Hang Seng Index: UP 1.9 percent at 21,388.34 (close)

Shanghai - Composite: UP 0.6 percent at 3,176.08 (close)

London - FTSE 100: UP 0.2 percent at 7,714.36

Tokyo - Nikkei 225: Closed for a holiday

Dollar/yen: DOWN at 132.00 yen from 132.13 yen on Friday

Euro/dollar: UP at $1.0690 from $1.0647 

Pound/dollar: UP at $1.2156 from $1.2095

Euro/pound: DOWN at 87.94 pence from 88.01 pence

West Texas Intermediate: UP 1.9 percent at $75.20 a barrel

Brent North Sea crude: UP 1.9 percent at $80.04 a barrel

New York - Dow: UP 2.1 percent at 33,630.61 (close)

-- Bloomberg News contributed to this story --

Agence France-Presse

Dollar slips, lacking momentum ahead of central bank meetings

LONDON - The dollar slipped on Tuesday but struggled to gain momentum, with most major currency pairs little changed as investors waited for major central bank meetings this week and next to indicate the direction of currency markets.

The Bank of Canada meets on Wednesday, then the Bank of Japan and European Central Bank meetings are on Thursday. Next week the Reserve Bank of Australia meets on Tuesday, the US Federal Reserve on Wednesday, and the Bank of England and Norges Bank on Thursday.

In equity markets there were signs of improved risk appetite due to strong earnings, with European stocks opening higher following a rally in the Asian session.

But the dollar index held steady, down 0.1 percent at 93.724 at 1132 GMT.

Simon Harvey, a currency analyst at Monex Europe, said that a flattening of the US yield curve also contributed to the dollar's downward move, by improving risk appetite.

The greenback rose 0.2 percent against the Japanese yen, with the pair at 113.930, holding below the four-year high of 114.695 reached last week.

The Bank of Japan is set to maintain its massive stimulus program and slash this year's inflation forecast in a sign it has no intention to follow other central banks that are preparing exits from crisis-mode policies.

The Canadian dollar was steady ahead of Wednesday's meeting, at which the central bank is expected to raise its inflation forecast and to largely end stimulus from its pandemic-era bond buying program, starting a tentative countdown to the first interest rate hike since October 2018.

The Australian dollar, seen as a liquid proxy for risk appetite, was up 0.3 percent at $0.75155. Last week, it rose above the key $0.75 level for the first time since July.

"If the rally on the commodity market continues, AUD is likely to remain supported for now," wrote Commerzbank strategist You-Na Park-Heger in a client note.

The New Zealand dollar was up 0.4 percent at $0.71895.

The euro was up 0.1% at $1.162. Expectations that the European Central Bank will take a dovish stance when it meets on Thursday have weakened the euro in recent sessions.

"We believe that there is a good chance that the ECB will push back against current market pricing for ECB rate hikes," wrote MUFG currency analyst Lee Hardman in a note to clients.

"The ECB's continued reluctance to raise rates should continue to weigh on the euro as other G10 central banks embark on hiking cycles."

ING strategists noted that, so far in 2021, energy-exporting currencies whose central banks are preparing to tighten - such as the Canadian dollar or Norwegian crown - have outperformed.

"The worst performers in the G10 space are the JPY and the EUR, both net energy importers, suffering the negative income shock from higher energy prices and with some of the most dovish central banks in the world," they wrote in a note to clients.

"Low energy inventories for both gas and crude and no signs that supply frictions are going to be eased anytime soon suggests this story should continue to play out."

China's offshore yuan was a touch stronger against the dollar, with the pair changing hands at 6.3771.

A call between China's Vice Premier Liu He and US Treasury Secretary Janet Yellen was seen as positive for Sino-US relations.

Bitcoin was down around 0.6 percent at $62,742.65 at 1138 GMT, having fallen below the all-time high of $67,016.50 it reached last week.

(Reporting by Elizabeth Howcroft; editing by John Stonestreet and Angus MacSwan)

-reuters-