© Reuters. FILE PHOTO: An eagle sits atop the US Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File
By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.
The battle lines between the stock market and the Fed are well drawn, and worryingly for investors still in the bank, the other side shows no sign of backing down.
Very different.
Late Tuesday Atlanta Fed President Raphael Bostic said tightening rates so far had not started inflation, and on Wednesday San Francisco Fed President Mary Daly said a pause in rate hikes was off the table and not part of the conversation.
Until recently, Daly was one of the members of the Federal Open Market Committee. Not anymore. His comments helped push Wall Street into the red on a day when bulls might have been hoping for an upper hand.
Tensions between the West and Russia eased after Poland and NATO said a missile struck inside Poland that killed two people on Tuesday may not have been a Russian strike, but a stray strike in Ukraine.
US Treasury Secretary Janet Yellen had a “truthful, encouraging, and positive” discussion with China’s central bank Governor Yi Gang at the G20 summit in Indonesia.
On the economy and the market, US retail sales came in stronger than expected; bond yields, the dollar, and the volatility index all fell; and the Atlanta Fed’s GDP estimate tracker for Q4 jumped to 4.4%.
But this is what Bostic showed. As the economy refuses to slow down, the Fed should be aggressive. Wall Street – and stocks and commodities around the world – is in trouble.
Goldman Sachs (NYSE: )’s US economic data shows that the US economy has contracted by nearly 100 bps over the past month. This is not what the Fed wants to see, and perhaps the support it has provided for lending money in recent weeks is beginning to wane.
US economic factors – Goldman Sachs index https://fingfx.thomsonreuters.com/gfx/mkt/zjvqjkekdpx/USFCI3.jpg
Bulls may also need to take into account the warning signs of the bond market in the US, where the curve is inverted from three months to 30 years.
Weakness on Wall Street will cause Asian stocks to open lower on Thursday, and the cat-and-mouse game between the markets and the Fed should control sentiment in the days and weeks ahead.
Three major factors that could provide guidance to markets on Thursday:
– Sales in Japan (October)
– Australia unemployment (October)
– Indonesia’s election (accepting 50 bps hike to 5.25%)
