On Monday, Asian stock markets fell as investors awaited a Federal Reserve meeting at which the financial sector is anticipated to confirm that it will soon begin removing the massive pool of liquidity that has fueled growth stocks in recent years.
Worries about a probable Russian strike on Ukraine heightened the caution, with the US State Department removing family members of its diplomatic workers in Kyiv.
According to the New York Times, President Joe Biden is considering sending tens of thousands of US military, as well as ships and airplanes, to NATO members in Europe.
This could be one of the reasons why the EUROSTOXX 50 futures fell 0.5 percent while the FTSE futures fell 0.4 percent.
The MSCI Asia-Pacific Index outside Japan (.MIAPJ0000PUS) fell 0.8 percent, while Japan’s Nikkei (.N225) fell 0.6 percent. Chinese blue chips (.CSI300) fell 0.4 percent, with little support from Beijing’s current policy easing.
However, following last week’s thrashing, Wall Street futures have rebounded, with the S&P 500 futures up 0.7 percent and the Nasdaq futures up 0.8 percent.
Even while the majority assumption is for a first-rate hike to 0.25 percent in March and three more to 1.0 percent by year’s end, jittery markets are already pricing in a tiny chance the Fed raises rates this week.
With their high valuations, the possibility of elevated cost of borrowing and more appealing bond yields has taken a toll on tech stocks, with the Nasdaq down 13% this year and the S&P 500 down nearly 8%.
The sell-off was worsened by a nearly 22% drop in Netflix’s stock price, resulting in a $44 billion loss in market capitalization.
Because of the magnitude of the losses, Treasuries rallied late last week on speculation that the market meltdown would scare the Fed into being less hawkish, a variation of the old Greenspan put.
Despite the recent downturn, Allen pointed out that the S&P 500 was still 40% higher than where it closed in 2019, and the Nasdaq was 60% higher.
Indeed, the first estimate of US GDP for the December quarter is anticipated this week, with growth expected to reach 5.4 percent on an annualized basis before Omicron slammed the brakes.
This week, around a fifth of the S&P 500 is slated to submit quarterly updates.
While Treasuries rose late last week, 10-year rates are still up 22 basis points for the month at 1.77 percent, not too far from early 2020 marks.
This rise has boosted the value of the US dollar, which gained 0.5 percent against major currencies last week and is currently trading at 85.647. After failing to continue a recent surge to near $1.1500, the euro was stalled at $1.1324.
As markets fall, the Japanese yen benefits from safe-haven flows, maintaining the dollar at 113.84, uncomfortably near to last week’s low of 113.47.
After hitting a six-week high of $1,842 last week, gold held steady at $1,835 per ounce.
Oil prices were climbing again after reaching a seven-year high for the fifth week in a row on forecasts that demand would remain strong and supplies would be limited.
Brent crude gained 83 cents to $88.72 a barrel, while US crude gained 77 cents to $85.91.