Oil was affected by the Shanghai shutdown; Yen falls as Bank of Japan defies yield wave

A man wearing a protective mask, amid the outbreak of the coronavirus disease (COVID-19), walks through an electronic board displaying charts (top) for the Nikkei index outside a brokerage in Tokyo, Japan, March 10, 2022. REUTERS/Kim Kyung-Hoon

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  • > Asian Stock Markets:
  • Oil prices fell more than $3 as the lockdown spreads in China
  • Bonds under pressure by Fed’s hawkish outlook
  • Yen extends decline as Bank of Japan works to stem yield rally
  • US payroll star in data-packed week

SYDNEY (Reuters) – Asian stocks tumbled and oil prices tumbled on Monday as the coronavirus shutdown in Shanghai hit economic activity, while the yen extended its turbulent slide as the Bank of Japan stood in the way of higher yields.

China’s financial hub of 26 million people has asked all companies to suspend manufacturing or have people work remotely in a two-phase shutdown over nine days. Read more

The spread of restrictions in the world’s largest oil importer saw Brent slip $3.39 to $117.26, while US crude fell $3.41 to $110.49.

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The risk-taking sentiment boosted hopes for progress at Russia-Ukrainian peace talks due to be held in Turkey this week after President Volodymyr Zelensky said Ukraine was ready to discuss adopting a neutral status as part of a deal. {nL2N2VU0EH]

Stock movement was muted with the broadest MSCI Asia Pacific Index outside Japan (.MIAPJ0000PUS.) petition. The index is down 2.1% during the month but is well above its recent lows.

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Chinese blue chips (.CSI300) fall 0.8%. Japan’s Nikkei Index (.N225) It lost 0.4%, but was still stronger about 6% on the month as a falling yen promised to boost exporters’ earnings.

S&P 500 stock futures fell 0.3%, while Nasdaq futures were down 0.4%. EUROSTOXX 50 futures managed to add 0.3% and FTSE futures added 0.2%.

Wall Street has so far proven remarkably resilient in the face of a radically more hawkish Federal Reserve. Markets are pricing in eight hikes for the six remaining policy meetings this year, bringing the money-to-money ratio to 2.50 – 2.75%.

Even this look is not aggressive enough for some. Citi last week forecast a narrowing of 275 basis points this year, including half-point increases in May, June, July and September.

“We expect the Fed to continue rising through 2023, reaching its 3.5-3.75% policy target range,” Citi analysts wrote. “The downside policy price risks remain to the upside given the upside risks to inflation.”

The main data event for this week will be US payrolls on Friday where another strong increase of 475,000 is expected with the unemployment rate hitting a new post-pandemic low of 3.7%. A batch of surveys on global manufacturing and inflation readings in the US and EU are also scheduled.

“US data will help shape expectations about whether the tightening in financial conditions is starting to spread to the broader economy,” said analysts at NatWest Markets.

Yields on 10-year Treasuries jumped 33 basis points last week and rose 71 basis points in the month at 2.53%, sharply raising US mortgage rates.

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NatWest warned that “the next major topic will be rising recession fears as the Fed leads to slower growth, which could support higher yields this summer.”

In the currency markets, the Japanese yen was the biggest loser, as policy makers there kept yields close to zero and higher commodity prices inflated the import bill.

The Bank of Japan on Monday reinforced its ultra-loose policy by offering to buy as many bonds as needed to keep 10-year bond yields below 0.25%.

This sent the dollar to a six-year high of 123.16 yen, giving it a gain of 6.9% for the month. Similarly, the resource-rich Australian dollar rose more than 10% to 92.44 yen.

Even the faltering euro is up 4% against the yen this month at 134.56. The single currency has lost about 2.3% against the dollar in the same period, but at $1.0954, just above a two-year low of $1.0804.

The decline in the yen kept the US dollar index higher at 99.098, with a monthly gain of 2.5%.

In the commodity markets, gold slipped back to $147 an ounce, although it was still up about 2% on the month.

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Editing by Jacqueline Wong

Our criteria: Thomson Reuters Trust Principles.

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