Asian markets face subdued open as US futures drop; traders see greater odds of another 75 bps Fed rate hike

Stocks in Asia look set for a cautious start on Monday following a jump in Treasury yields and the dollar on expectations of further aggressive Federal Reserve interest-rate hikes to tame elevated inflation. Futures dipped for Japan, Australia and Hong Kong, while S&P 500 and Nasdaq 100 contracts declined. Global shares completed a third straight advance last week in a rebound from bear-market lows. Strong US jobs data Friday added to the case for more Fed monetary tightening. That left Treasury yields sharply higher and spurred the greenback. A key part of the US bond curve is the most inverted since 2000, suggesting investors foresee a recession ahead as the Fed applies the brakes on the economy. Crude oil, meanwhile, retreated further below $90 a barrel, hampered by worries about the demand outlook. Both gold and Bitcoin wavered.

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If investor projections for a peak in the fed funds rate top 4% following the inflation data, we could see “risk rolling over, with volatility rising, defensives outperforming, and better shorting opportunities” kicking in, Chris Weston, Pepperstone Group Ltd. head of research, wrote in a note. The latest comments from Fed officials left a question mark over wagers on a policy pivot toward reducing borrowing costs next year.

‘Far From Done’San Francisco Fed President Mary Daly said the US central bank is “far from done yet” in bringing down price pressures. Governor Michelle Bowman said the Fed should keep considering large hikes similar to the 75 basis-point increase approved last month until inflation meaningfully declines.

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Elsewhere in the US, the Senate passed a landmark tax, climate and health-care bill, speeding a slimmed-down version of President Joe Biden’s domestic agenda on a path to becoming law. Incoming reports showed China’s trade surplus rose to a record. The nation’s economic rebound faces potential global headwinds as well as domestic Covid flareups and property-sector woes. Investors also continue to monitor tension over Taiwan, which reiterated it won’t succumb to pressure from China after days of military drills in the air and seas surrounding the island.