Asia shares brace for hawkish Fed, Ukraine tensions By Reuters

By Wayne Cole

SYDNEY (Reuters) – Asian share markets slipped on Monday as investors braced for a Federal Reserve meeting at which it is expected to confirm it will soon start draining the massive lake of liquidity that has supercharged growth stocks in recent years.

Adding to the caution were concerns about a possible Russian attack on Ukraine with the U.S. State Department pulling out family members of its embassy staff in Kyiv.

The New York Times reported President Joe Biden was considering sending thousands of U.S. troops to NATO allies in Europe along with warships and aircraft.

That might be one reason EUROSTOXX 50 futures slipped 0.5%, while futures fell 0.4%.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.8% and 0.6%. Chinese blue chips fell 0.4%, getting little traction from a recent easing in policy by Beijing.

However, Wall Street futures bounced after last week’s drubbing, with the up 0.7% and Nasdaq futures 0.8%.

Edgy markets are now even pricing in a small chance the Fed hikes rates this week, though the overwhelming expectation is for a first move to 0.25% in March and three more to 1.0% by year end.

“With inflation eye-wateringly high, the Fed is on course to steadily remove the ultra-accommodative monetary policy that has been a key prop to stock prices for over a decade now,” said Oliver Allen, a market economist at Capital Economics.

The prospect of higher borrowing costs and more attractive bond yields took a toll on tech stocks with their lofty valuations, leaving the Nasdaq down 12% so far this year and the nearly 8%.

The rout was exacerbated by a slide in Netflix (NASDAQ:), which tumbled almost 22%, shedding $44 billion in market value.

Such was the scale of the losses that Treasuries actually rallied late last week on speculation the bonfire of market wealth might scare the Fed into being less hawkish, a variation of the old Greenspan put.

However, Allen noted that even with the recent drop the S&P 500 was still 40% above where it ended 2019, and the Nasdaq 60%.

“Investors may not be able to rely on a so-called ‘Fed put’ this time around, given that the central bank’s tightening cycle has not even begun, and that the strength of the U.S. economy suggests that much tighter policy is warranted.”

Indeed, the first reading of U.S. gross domestic product for the December quarter is due this week and forecast to show growth running at an annualised 5.4% before Omicron put its foot on the brakes.

Earnings season is also well under way and companies reporting this week include IBM (NYSE:), Microsoft (NASDAQ:), Johnson & Johnson (NYSE:), Intel (NASDAQ:), Tesla (NASDAQ:), Apple (NASDAQ:) and Caterpillar (NYSE:).

Around a fifth of the S&P 500 are expected to provide quarterly updates this week.

While…