Sydney, Oct 10 (BNA): Shares in Asia fell on Monday after a surprise drop in the US unemployment rate wiped out any idea of a pivot on policy tightening ahead of an inflation reading that is expected to see core prices rise again.
Geopolitical tensions added to the uncertainty as markets waited to see how the Kremlin might respond to the explosion that hit Russia’s only bridge with Crimea.
Holidays in Japan and South Korea led to weak trading in Asia, while the Treasury market was also closed on Monday.
S&P 500 futures led the early action down 0.5%, while Nasdaq futures slipped 0.6% as earnings season kicks off in the US later this week, according to Reuters.
Nikkei futures were trading at 26,615 compared to Friday’s cash close of 27,116.
Wall Street sank Friday after an upbeat payroll report that appeared to seal the deal with another rate hike from the Federal Reserve.
Futures suggest there is a more than 80% chance of interest rates rising by 75 basis points next month, while this is expected to match the European Central Bank (ECB) and raise the Bank of England at least 100 basis points.
“We are in the midst of the largest and most synchronized global monetary tightening in more than three decades,” said Bruce Kasman, head of economic research at JPMorgan, who expects 75 basis point hikes from all three central banks.
“The September CPI report will show moderation in commodity prices, which is a possible precursor to a broader slowdown in core inflation,” he said. “But the Fed will not respond to whispers of moderation in inflation as long as labor markets tighten.”
General consumer price inflation is expected to slow to 8.1% annually, but the core measure is expected to accelerate to 6.5% from 6.3%. US CPI data will be released on Thursday at 8:30 AM ET (12:30 GMT).
The minutes of the Fed’s latest policy meeting are also out this week and are likely to look hawkish given the number of policy makers raising their expectations for price points.
Wall Street also faces a test period on corporate earnings as major banks kick off the season on Friday, including JPMorgan, Citi, Wells Fargo and Morgan Stanley.
“The consensus expects earnings per share growth of 3% year-over-year, sales growth of 13%, and margin contraction of 75 basis points to 11.8%,” analysts at Goldman Sachs said in a note. “Excluding energy, earnings per share are expected to decline by 3% and profit margins to contract by 132 basis points.”
“We expect smaller positive surprises in the third quarter compared to the first half of 2022 and negative revisions to consensus estimates for the fourth quarter and 2023.”
The sticking point is likely to be the strength of the dollar, which will put pressure on outside earnings.
The dollar index settled at 112.75 after rising in the past three sessions. It settled at 145.34 yen, but so far has moved away from a 24-year high of 145.90 for fear of Japanese intervention.
The euro looked weak at $0.9734, having retreated from the high of $0.9999 last week.
Sterling did slightly better at $1.1089, as traders were on edge as the Bank of England is set to end its emergency bond buying campaign on Friday.
The 10-year yield is still high at 4.237% and far from the 3.31% level it was in before the UK mini budget drove the market to crash.
The rise in the dollar and yields was a drag on gold, which was hovering at $1,694 an ounce.
Oil prices rose after Brent crude rose 11% last week in the wake of a supply cut deal by OPEC+.
Brent settled 12 cents at $98.04 a barrel, while US crude rose 21 cents to $91.85 a barrel.
HF