The Asian Stock Market Will Fall as Traders Reprice Interest Rates: Market Wrap

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The Asian stock market is set to decline on Monday amid the revaluation of interest rates, following the United States, which pared earlier gains amid evidence that the Federal Reserve will remain restrictive for a more extended time than anticipated.

“Markets have repriced in February as central banks are concerned about having more work to do,” says Sam Lynton-Brown, global head of macro strategy at BNP Paribas.

“We believe there’s still room to run on that repricing. So either equity is at risk to come lower, or rates are at risk to head higher.”

The S&P 500 and Nasdaq 100 remained firmly in the green on Monday despite market repricing. This was mainly due to gains made by tech stocks, offsetting losses in banks and other rate-sensitive sectors.

Fed Governor Philip Jefferson, however, firmly backed the central bank’s inflation goal of 2%. This dented these gains slightly.

New U.S. economic data investors are parsing on Monday showed a robust economy despite the Fed’s persistent rate hikes.

Last month, pending home sales in the United States rose to their highest level since June 2020. It shows that Americans continue to take advantage of low mortgage rates and a buoyant job market to purchase homes despite increasing borrowing costs from the Fed’s policy tightening moves.

The sanguine mood in the markets took a knock as the Federal Reserve’s preferred inflation gauge accelerated, dashing hopes for a possible policy pivot from the central bank. This means traders are now pricing U.S. rates to peak at 5.4% this year, compared with about 5% last month.

Meanwhile, rising interest rates have also impacted bond yields and stocks as investors reassess their strategies in light of mounting evidence that the recovery may be further away than initially thought. With rates expected to stay high, many investors will likely stick with safe investments like bonds rather than riskier assets like stocks or commodities.

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