Asia braces for Chinese data, oil nears 2021 highs

Passers-by wearing protective face masks walk past an electronic board displaying global stock market indices, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan November 1, 2021. REUTERS/Issei Kato

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  • Asian scholarships:
  • Nikkei rebounds, S&P 500 futures near flat
  • Chinese data expected to show coronavirus trail
  • US earnings season approaching, tech stocks vulnerable
  • Brent climbs to peaks between 2021 and 2018

SYDNEY, Jan 17 (Reuters) – Asian stock markets got off to a cautious start on Monday as the U.S. earnings season approached and a slew of Chinese economic data were expected to show the dampening effect of coronavirus-related business restrictions.

A U.S. holiday reduced trading, but that didn’t stop Brent from extending its bull run to last year’s high of $86.70 a barrel.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was little changed, while Japan’s Nikkei (.N225) rebounded 0.8% after falling 1.2% last week.

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S&P 500 futures were flat, while Nasdaq futures fell 0.1%.

The main feature of the market recently has been a rotation towards value stocks and away from growth, especially technology. The S&P 500 information technology sector (.SPLRCT), which makes up nearly 29% of the index, has lost 5.5% this year.

With valuations still elevated, earnings will need to be strong to stop further losses. According to Refinitiv IBES, overall S&P 500 earnings are expected to climb 23.1% this season, while the tech sector is expected to rise 15.6%.

Companies reporting this week include Goldman Sachs (GS.N), BofA (BAC.N), Morgan Stanley (MS.N) and Netflix.

The market will be spared speeches from Federal Reserve officials this week ahead of their Jan. 25-26 policy meeting, but there have been more than enough hawkish comments to see the market almost fully price in a first rate hike for March.

There has also been talk that the Fed will start shrinking its balance sheet sooner than expected, draining some of the excess liquidity from global markets.

Yields on 10-year Treasury bills in cash rose to their highest level in a year at 1.8%, while futures implied a yield of 1.83% early Monday.

“The implications of quantitative tightening continue to occupy markets as an earlier runoff from the Fed’s balance sheet looms,” Barclays analysts noted.

“Meanwhile, further COVID lockdowns in China could exacerbate global supply bottlenecks again, while in Europe and the United States near-term growth prospects are now weaker and higher 2022 inflation profiles.”

Data out of China due Monday is expected to show retail sales and industrial production slowed further in December. The economy is expected to have grown 1.1% in the fourth quarter, although the annual pace slowed to 3.6% from 4.9%.

BEWARE OF THE BOJ

A Bank of Japan (BOJ) policy meeting this week will be worth watching as it revises its outlook for growth and inflation, while sources told Reuters policymakers are debating when to which they could start telegraphing a possible rise in interest rates.

While a move is unlikely this year, financial markets may be underestimating its willingness to phase out its once sweeping stimulus package. Read more

This is one of the reasons why the yen has rallied, with the dollar slipping 1.2% last week to settle at 114.29, but still well above major chart support at 112, 52.

The euro also gained 0.5% last week as the dollar eased broadly and last changed hands at $1.1408. The Dollar Index was a little firmer at 95.231, after hitting a 10-week low at 94.626 on Friday.

“We continue to believe the greenback will strengthen again before long, as we expect strong cyclical price pressures in the US to mean the Fed tightens further and for longer than investors expect. are currently discounting it,” said Joseph Marlow, an economist at Capital Economics.

They see Fed rates going over 2.5% while the market has been forecasting a peak around 1.75-2.0%. .

Higher rate risk kept gold non-performing at $1,817 an ounce, while industrial and energy resources benefited from resilient demand and limited supply.

Oil prices have climbed for four straight weeks and demand is such that physical barrels of oil are changing hands at near-record premiums.

Early Monday, Brent had added another 51 cents to $86.57 a barrel and was approaching the 2021 high at $86.70 and the 2018 high at $86.74. A break there would take it to peaks last visited in 2014.

U.S. crude also firmed 75 cents to $84.57 a barrel.

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Editing by Himani Sarkar

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