Asian stocks, dollar hunt for direction as investors look to Fed policy

Asian equities and the dollar struggled to find direction on Tuesday as investors awaited Federal Reserve Chair Jerome Powell’s appearance before the Senate Banking Committee, hoping for clues to the timing of expected policy tightening.

Powell is seeking a second four-year term as head of the Fed, and his appearance before the committee will be followed by a hearing with vice chair nominee Lael Brainard on Thursday.

EUROSTOXX 50 futures rose 0.6 per cent and FTSE futures gained 0.3 per cent, indicating a firm open for European stock markets.

Global markets have been on the edge for inflation risks but Hou Wey Fook, chief investment officer at DBS Bank, said he did not think inflation was in a “runaway situation”.

“There are a lot of shorter term drivers like the global supply chain and economies re-opening,” Hou said.

“Once we have some normalisation of those things, inflation should kind of come back down to more reasonable levels and the Fed will probably not be too aggressive,” he said.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2 per cent after slipping much as 0.3 per cent.

The Nikkei index fell 0.9 per cent as trading resumed after a holiday on Monday. Australian stocks shed 0.8 per cent, Taiwan added 0.3 per cent and Seoul was steady.

Hong Kong ticked 0.1 per cent higher and China’s 300 index shed 0.8 per cent.

US December consumer inflation data will be released on Wednesday, with headline CPI seen coming in at a red-hot 7 per cent on a year-on-year basis, boosting the case for interest rates to rise sooner rather than later.

S&P 500 futures and Nasdaq futures were little changed.

The Fed in December flagged plans to tighten policy faster than expected in response, with a rate hike perhaps as soon as March.

But that was before it became clear just how fast the Omicron variant would spread, with this week’s hearings the first opportunity for Powell and Brainard to say how the current outbreak of the disease have influenced their outlook.

“We continue to believe lift-off in March is increasingly likely. How these debates are settled will likely have implications for post-liftoff rate hikes,” Nomura’s economists said in a report, referring to US monetary policy.

“In particular, we believe comments regarding earlier runoff and less aggressive rate hikes support our view that the Fed will slow the pace of rate hikes to two per year in 2023.”

Asian equities have fared relatively better so far this year. MSCI’s key benchmark has held steady, with gains seen in Indian and Hong Kong stocks, while Japanese and Chinese markets dipped.