China’s financial hub, which has a population of 26 million, has asked all companies to suspend production or have employees work remotely under a nine-day, two-stage lockdown.
Spreading restrictions in the world’s biggest oil importer caused Brent to drape $3.68 to $116.97, while US crude fell $3.30 to $110.60. [O/R]
The sense of risk was helped by hopes for progress in the Russian-Ukrainian peace talks to be held in Turkey this week after President Volodymyr Zelenskiy said Ukraine was ready to discuss adopting a neutral within the framework of an agreement.
MSCI’s broadest index of stocks in the Asia-Pacific region, excluding Japan, lost 0.1%. The index is down 2.3% over the month, but well above recent lows.
The Japanese Nikkei was down 0.4% but remained up nearly 6% on the month as the weaker yen promised to lift profits for exporters.
S&P 500 stock futures fell 0.2%, while Nasdaq slid 0.3%.
So far, the Stock Exchange has been remarkably resilient to a radically more belligerent Federal Reserve. Markets are pricing in eight hikes in the remaining six meetings this year, bringing the funds rate to 2.50-2.75%.
Even this perspective is not aggressive enough for some. Last week, Citi forecast 275 basis points of tightening this year, including half-point hikes in May, June, July and September.
“We expect the Fed to continue its hikes through 2023, reaching a target range of policy rates of 3.5-3.75%,” the Citi analysts wrote. “Risks to the terminal policy rate remain on the upside given the risk of upside inflation.”
The key event this week will be the release of US employment figures on Friday, where another solid increase of 475,000 is expected, with the unemployment rate hitting a new post-pandemic low of 3.7%. A series of surveys on global manufacturing and readings on US and European inflation are also expected.
“The US data will help determine whether the tightening of financial conditions is beginning to trickle down to the broader economy,” NatWest Markets analysts said.
Yields on 10-year treasury bills jumped 33 basis points last week and are up a staggering 66 basis points on the month, to 2.48%, pushing US mortgage rates higher.
“The next major theme will be rising recession fears as the Fed hikes amid decelerating growth, which could support a spike in yields through this summer,” NatWest warned.
In the currency market, the Japanese yen has been the biggest loser as policymakers there hold yields around zero and high commodity prices drive up the import bill.
The dollar jumped 6.2% against the yen this month to hit 122.18, while the resource-rich Australian dollar climbed almost 10% to 91.88 yen.
Even the otherwise struggling euro is up 4% against the yen this month, to 134.27. The single currency lost around 2.1% against the dollar over the same period, but at $1.0980 it is above the recent two-year low of $1.0804.
The yen’s plunge kept the US dollar index at 98.848, with a 2.2% gain for the month.
In commodity markets, gold held steady at $1,955 per ounce, up around 2.5% over the month. [GOL/]