- Bond rout eases; traders brace for biggest Fed hike since 1994
- China refrains from cutting key policy rate; yuan strengthens
By Andreea Papuc
June 15, 2022
US equity futures edged up Wednesday and Asian stocks struggled for traction ahead of a Federal Reserve meeting that’s expected to deliver a hefty interest-rate hike to fight inflation.
An Asia-Pacific share gauge wavered, with Chinese technology stocks among the gainers but Japan in the red. S&P 500 and Nasdaq 100 contracts rose less than 1%. Wall Street Tuesday cemented its longest losing streak since January.
Treasuries steadied following their worst rout in decades. Two-year yields retreated after hitting a level last seen in 2007 and the 10-year yield pulled back from near 3.5%.
Traders anticipate a 75-basis-point hike from the Fed Wednesday, the biggest since 1994. Parts of the US yield curve remain inverted, signaling concerns that restrictive monetary policy will lead to an economic downturn.
The dollar slipped and the Japanese yen climbed from a 24-year low. The offshore yuan advanced after China’s central bank refrained from cutting a key policy rate. Bitcoin stabilized around $22,000. Oil held under $120 a barrel.
Fears of stagflation have driven stocks into a bear market and triggered a stunning selloff in bonds in recent days. Uncertainty is elevated heading into the Fed decision: increments of 50 basis points, 75 basis points and even 100 basis points have all been chewed over by commentators.
“The sooner they are going to be clear about how quickly they are going to raise rates and what is an acceptable rate of inflation for them, the sooner markets will calm down,” Barbara Ann Bernard, chief investment officer at Wincrest Capital Ltd., said on Bloomberg Television.
In China, data came in slightly better than expected but still highlighted challenges stemming from Beijing’s preference for tackling Covid with lockdowns. Industrial output climbed, but retail sales shrank.
All eyes, though, are on US monetary policy amid elevated price pressures stoked by disruptions to raw-material flows and supply chains.
“Inflation is front and center in the news and asset markets, and few are expressing concern about overdoing the pace of tightening,” Steve Englander, head of global G10 FX research at Standard Chartered Bank, wrote in a note.