Stocks weakened in Asian markets on Monday, while the US dollar strengthened as investors anticipate global central bank meetings that are expected to result in higher borrowing costs worldwide, with the prospect of a significant interest rate hike by the Federal Reserve.
MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.6%, having traded nearly 3% lower in the previous week, while a holiday kept activity in Japan’s markets muted.
China’s Shanghai Shenzhen CSI 300 blue-chip index slipped 0.1% after climbing 0.1% on the People’s Bank of China’s (PBOC) move to reduce the 14-day reverse repo rate by ten basis points to 2.15% from 2.25%.
A recent fund manager survey from the Bank of America (BofA) signaled allocations to stocks around the globe are at an all-time low.
Global Central Bank Meetings Ahead
Markets are mainly betting on a 75-basis point rate increase from the Fed, with futures indicating a 20% probability of a full 100-basis point hike.
They also presented the possibility that the US central bank would raise benchmark rates to 4.5% to tip the world’s largest economy into a mild slump to ease inflation.
Goldman Sachs Group Inc.’s Chief Economist Jan Hatzius said the funds rate would reach high enough to create tightened financial conditions that slow activity enough to keep a ‘solidly below-potential growth trajectory.’
Hatzius projected a 75-basis point hike by the Fed this month and two half-point increases at November and December meetings.
The Fed on Wednesday is also set to release its ‘dot plot’ funds rate estimates, which are expected to be hawkish and place the rates between 4% and 4.25% by the end of 2022, and higher in 2023.
Analysts said their in-house growth indicators showed a gloomy outlook for global economic growth. However, they are seeing one of the most aggressive tightening events in history, with 85% of major central banks worldwide choosing to tighten their respective monetary policies.
Many central bank meetings this week, from Switzerland to South Africa, are expected to choose to raise interest rates. On the other hand, investors are split on whether the Bank of England (BoE) will move to increase rates by 50 or 75 basis points.
Meanwhile, the Bank of Japan (BOJ) appeared to be sticking to its ultra-loose policy and making no adjustments to its yield curve control.
