SYDNEY: Asian share markets turned hesitant on Monday (Nov 21) as investors fretted about the economic fallout from fresh COVID-19 restrictions in China, while bonds and the dollar braced for more updates on US monetary policy.
Beijing's most populous district urged residents to stay at home on Monday as the city's COVID-19 case numbers rose, while at least one district in Guangzhou was locked down for five days.
The rash of outbreaks across the country has been a setback to hopes for an early easing in strict pandemic restrictions, one reason cited for a 10 per cent slide in oil prices last week.
It also dragged MSCI's broadest index of Asia-Pacific shares outside Japan off a two-month high, though it still ended firmer on the week. Early Monday, the index was down 0.1 per cent. Japan's Nikkei added 0.3 per cent, while South Korea eased 0.4 per cent.
S&P 500 futures were down 0.2 per cent, while Nasdaq futures slipped 0.1 per cent in quiet trade.
The Thanksgiving holiday on Thursday combined with the distraction of the football World Cup could make for thin trading, while Black Friday sales will offer an insight into how consumers are faring and the outlook for retail stocks.
Minutes of the US Federal Reserve's last meeting are due on Wednesday and could sound hawkish, judging by how officials have pushed back against market easing in recent days.
Atlanta Federal Reserve President Raphael Bostic said on Saturday said he was ready to step down to a half-point hike in December but also underlined that rates would likely stay high for longer than markets expected.
Futures imply a 76 per cent chance of a rise of 50 basis points to 4.25-4.5 per cent and a peak for rates around 5.0-5.25 per cent. They also have rate cuts priced in for late next year.
"We are comfortable that the deceleration under way in US inflation and European growth produces a moderation in the pace of tightening starting next month," said Bruce Kasman, head of research at JPMorgan.
"But for central banks to pause they also need clear evidence that labour markets are easing," he added. "The latest reports in the US, euro area, and UK point to only a limited moderation in labour demand, while news on wages points to sustained pressures."
There are at least four Fed officials scheduled to speak this week, a teaser ahead of a speech by Chair Jerome Powell on Nov 30 that will define the outlook for rates at the December policy meeting.
PRICED FOR RECESSION
Bond markets clearly think the Fed will tighten too far and tip the economy into recession as the yield curve is the most inverse it has been in 40 years.
On Monday, 10-year note yields of 3.84 per cent were trading 71 basis points below the two-year.
The Fed chorus has helped the dollar stabilise after its recent sharp sell-off, though speculative positioning in futures has turned net short on the currency for the first time since mid-2021.
Early Monday, the dollar was a touch softer at 140.26 yen, after last week's bounce from a low of 137.67. The euro held at US$1.03 and was short of the recent four-month top of US$1.15.
The US dollar index stood at 106.90, off last week's trough of 105.30.
"Given how far US bond yields and the dollar have dropped in the past couple of weeks, we think there is a good chance that they rebound if the Fed minutes are in line with the recent hawkish language from members," said Jonas Goltermann, a senior markets economist at Capital Economics.
In commodity markets, gold was a fraction firmer at US$1,751 an ounce, after dipping 1.2 per cent last week.
Oil futures were trying to find a floor after last week's drubbing saw Brent lose 9 per cent and WTI roughly 10 per cent.
Brent edged up 18 cents to US$87.80, while US crude added 10 cents to US$80.18 per barrel.