Shares in South Korea fell, while those in Hong Kong and China fluctuated amid a volatile open. U.S. futures swung between gains and losses.

Stocks in Asia traded cautiously Monday as investors brace for bond-market volatility and assess the economic hit from the rapidly spreading Covid omicron variant.

Shares in South Korea fell, while those in Hong Kong and China fluctuated amid a volatile open. U.S. futures swung between gains and losses after the S&P 500 posted the worst start to a year since 2016 as expectations of faster-than-anticipated U.S. interest-rate increases roiled bond markets. The tech-heavy Nasdaq 100 had its worst week since February amid a rotation out of high-growth tech names. Japan is shut for a holiday Monday.

Treasury futures extend losses after posting the biggest one-week decline since February 2021. Australia’s 10-year bonds tumbled. Treasury yields climbed across the board last week in a selloff sparked by Federal Reserve minutes signaling a willingness to start hiking rates as soon as March. Cash Treasuries won’t trade in Asia because of the Japan holiday. The dollar was steady.

U.S. inflation data this week will be keenly watched as concerns grow the Fed is behind the curve in tackling elevated price pressures. U.S. employers added fewer staff than expected in December, but wages rose more than forecast, boosting the Fed’s case to tighten liquidity.

Markets face increasing volatility as investors grapple with how to reprice assets as the pandemic liquidity that helped drive equities to record highs is withdrawn. At the same time, the spread of omicron is posing a fresh test for economic activity. 

“The U.S. Fed needs to tread carefully in removing policy accommodation – it should not happen too fast otherwise it risks a disruption to the rebound in economic growth and could lead to another ‘taper tantrum,’” Diana Mousina, senior economic in the multi-asset group at AMP Capital, said in a note. She sees more volatility this year from inflation, Fed rate hikes and geopolitics as well as U.S. mid-term elections.  

Brace for Volatility

Comments from a host of Fed speakers this week will be scrutinized for clues on the central bank’s schedule to trim accommodative monetary policy.

“Inflation is the biggest concern and that’s why you have to brace yourself,” Al Lord, Lexerd Capital Management founder and chief executive officer, said on Bloomberg Television. “Rates are going higher, there is no doubt here. The Fed is behind the curve. We certainly have to brace ourselves for volatility here.”

In China, the China Securities Regulatory Commission said it will adopt various measures to avoid volatility and “firmly” prevent big fluctuations after stocks had the worst start for a year since 2016. The nation is seeing its first omicron cases in the community.

Elsewhere, Bitcoin traded around $42,000 as cryptocurrencies continue to struggle.  

Here are some key events this week:

  • Atlanta Fed President Raphael Bostic discusses the economic outlook Monday
  • Fed Chair Jerome Powell’s confirmation hearing in the Senate Banking Committee. Tuesday
  • Kansas City Fed President Esther George, St. Louis Fed President James Bullard discuss economy and monetary policy Tuesday
  • Wednesday: EIA crude oil inventory report; China PPI, CPI
  • U.S. CPI Wednesday
  • U.S. Senate Banking Committee hearing for Lael Brainard, nominated as Fed vice-chair. Thursday
  • Richmond Fed President Thomas Barkin; Philadelphia Fed President Patrick Harker; Chicago Fed President Charles Evans on economy and monetary policy. Thursday
  • Bank of Korea policy decision, briefing Friday
  • Earnings 4Q: Wells Fargo, Citigroup, JPMorgan. Friday
  • New York Fed President John Williams speaks Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.1% as of 10:50 a.m. in Tokyo. The S&P 500 fell 0.4%
  • Nasdaq 100 futures were little changed. The Nasdaq 100 fell 1.1%
  • Australia’s S&P/ASX 200 Index fell 0.1%
  • South Korea’s Kospi index slipped 1.4%
  • Hang Seng Index rose 0.2%
  • Shanghai Composite Index fell 0.5%

Currencies

  • The Japanese yen was at 115.63 per dollar
  • The offshore yuan was at 6.3857 per dollar
  • The Bloomberg Dollar Spot Index was little changed
  • The euro was at $1.1357

Bonds

  • The yield on 10-year Treasuries advanced four basis points to 1.76% Friday
  • Australia’s 10-year bond yield rose six basis points to 1.91%

Commodities

  • West Texas Intermediate crude fell 0.3% to $78.70 a barrel
  • Gold was at $1,795.66 an ounce

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