Asia Stocks Fall, Dollar Firm On U.S. Rate Hike Bets After Powell’s Renomination

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Asia stocks faltered on Tuesday, tracking a retreat on Wall Street as traders bolstered their bets on U.S. rate hikes in 2022 after President Joe Biden picked Federal Reserve Chair Jerome Powell to lead the central bank for a second term.

The London market pointed to a softer opening with FTSE futures off 0.21%, while E-mini futures for the S&P 500 index stayed flat.

MSCI’s gauge of Asia Pacific stocks outside Japan fell 0.52%, while Hong Kong’s Hang Seng Index slid 1%.

China’s benchmark CSI300 Index pared morning losses to stay just above the red, led by real estate shares after Chinese banks were told to issue more loans for property projects.

Australia’s S&P/ASX 200 outperformed, closing up 0.79%, boosted by miners and energy stocks. Japanese markets were closed for a public holiday.

President Biden on Monday tapped Powell to continue as Fed chair, and Lael Brainard, the other top candidate for the job, as vice chair. The news initially buoyed Wall Street stocks, before the market pulled back into the afternoon with the S&P 500 and Nasdaq Composite closing down from all-time highs. The dollar attracted solid support.

Riskier assets have been shaken up again over recent sessions amid surging COVID-19 cases in Europe and renewed curbs, dousing investor hopes of a quicker recovery in consumption and growth worldwide.

Germany’s outgoing Chancellor Angela Merkel said the latest surge is the worst experienced by the country so far, while Austria went into a fresh lockdown on Monday.

Powell’s current term, which has seen an emphasis on creating jobs from the prominent focus on inflation, has proven positive for risk assets, with the S&P gaining 69.7% since his appointment.

“The USD looks poised to hold onto its gains post-Powell renomination as it leaves room for markets to flirt with the idea of a faster taper,” said analysts at TD Securities in a note.

The U.S. rates chatter kept the dollar index well supported near a 16-month peak. The greenback was also near a 4-1/2-year top versus the yen in early deals on Tuesday.

U.S. Treasury yields were led higher by two-year notes, which typically moves in step with interest rate expectations. It hit its highest level since early March 2020.

“Market is expecting a higher probabilities of rate hike next year… it is widely expected (that we will) have three to four times rate hike next year,” said Edison Pun, Senior Market Analyst at Saxo Markets.

In commodities, spot gold rose 0.19% to $1,808.4 per ounce, paring Monday’s losses. Gold prices were under pressure as Powell’s nomination drove expectations that the central bank will stay the course on tapering economic support.

Oil prices were in the red again after a short rebound the previous day from recent losses on reports that OPEC+ could adjust plans to raise oil production if large consuming countries release crude from their reserves or if the coronavirus pandemic dampens demand.

Brent crude was down 0.49% at $79.31 a barrel and U.S. crude <CLc1> dropped 0.7% to $76.21 per barrel by 0521GMT.

The U.S. Department of Energy is expected to announce a loan of oil from the Strategic Petroleum Reserve on Tuesday in coordination with other countries.
– Reuters

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