Politics
Asia wary of future Fed rates, Chinese data disappointing
By Wayne Cole
SYDNEY (Reuters) – Asian stock markets were in a wary mood on Monday as rising bond yields challenged stock valuations, particularly those in the high-valued technology sector, in a week packed with meetings central banks and major economic data.
Chinese figures released Monday showed retail sales rose just 3.0% in November from a year earlier, well below market forecasts of 4.6% and reflecting the need for a much more aggressive recovery. Industrial production was in line with expectations, while house prices continued to fall, albeit at a slower pace.
China's blue-chip index fell 0.2%, after falling more than 2% last Friday.
Over the weekend, a Chinese central bank official said it had room to further cut the reserve requirement ratio, even though credit figures released last week showed past relaxations had not. did little to stimulate borrowing.
Interest rates are expected to fall in the United States and Sweden later this week, and to remain stable in Japan, the United Kingdom and Norway.
The Federal Reserve will lead the pack on Wednesday, with markets pricing in a 96% chance that it will cut rates by 25 basis points to a new range of 4.25% to 4.50%.
More important will be indications of future easing, including Fed members' point forecasts for rates over the next two years.
“We hope the updated points signal a median expectation of three cuts next year, up from four in the September projection,” said Michael Feroli, an economist at JPMorgan. “The long-term midpoint, which was 2.875% in September, is expected to rise to 3%, or perhaps even 3.125%.”
“That said, given the ups and downs of trade and other policies next year, the signal from the dots may be even less useful than usual.”
Investors have gradually lowered their expectations for the extent of the rate cut, partly due to good economic news and speculation that President-elect Donald Trump's plans for tax and tariff cuts Trump would increase government borrowing while putting upward pressure on inflation.
The futures imply just two more cuts next year and rates bottoming around 3.80%, much higher than a few months ago. That outlook had a big impact on the Treasury market last week, where long-term yields posted their biggest weekly rise this year. [US/]
Yields on the 10-year bond rose to 4.39%, after climbing 24 basis points last week alone and threatening to exceed a major downside target of 4.50%.
Rising yields make bonds more attractive than stocks while increasing the discount level of future cash flows and potentially the cost of capital for companies.
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