Asian stocks slid Monday after traders soured on the reflation trade in the wake of a hawkish pivot by the Federal Reserve. A gauge of the dollar was steady against major peers.
Equities fell in Japan, Australia and South Korea. U.S. futures fluctuated after the S&P 500 slid Friday, when commodities such as copper dropped and the dollar touched a two-month high on the prospect of less accommodative U.S. monetary policy.
The flattening of the Treasury yield curve was another illustration of the retreat in reflation bets, a trade that had dominated markets this year. The 10-year yield declined to 1.44%, and short-maturity yields surged after Fed official James Bullard said inflation risks may warrant higher interest rates next year, an earlier liftoff than penciled in by many of his colleagues.
In a light week for economic data, traders will be paying close attention to appearances by Fed policy makers, including Chair Jerome Powell, for any guidance on the winding back of stimulus. In his comments, Bullard also said that the central bank has started discussing tapering asset purchases.
“The shift toward tapering and a pull forward in first rate hikes may cause bouts of nervousness in markets with shares vulnerable to a decent correction,” Shane Oliver, head of investment strategy at AMP Capital, wrote in a note. “But note that tapering is not monetary tightening (it’s just slower easing) and rate hikes are still a fair way off in most developed countries.”
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These are some of the main moves in financial markets:
— With assistance by Sophie Caronello
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