Tom Westbrook

SINGAPORE (Reuters – Stocks surged on Monday thanks to a post-election rise in. However, bonds slowed and the dollar firmed, as traders awaited central bank meetings in Australia, the United States and Britain to discuss the outlook for rates.

Japan’s Nikkei rose 2.3%, to a one month high following Prime Minister Fumio Kishida’s Liberal Democratic Party winning better than expected in Sunday’s election. The party was easily retained by exit polls.

The trade in Asia-Pacific was less robust, and MSCI’s Asia-Pacific share index outside Japan rose marginally. Weekend data showing a sharper-than-expected contraction of Chinese factory activity weighed on the mood.

The increase was 0.3% [.N]

A week of key central bank meetings is highlighted by the Fed. There are policy changes possible at both the Bank of England (BoE) and Reserve Bank of Australia as rising inflation pushes up the rate outlook.

After wrapping up a two day meeting, the Fed is likely to announce that it will begin to reduce bond purchases. However, markets are focusing on indications regarding rates rise-off.

Fed funds futures have pricing increases starting early in 2022. Goldman Sachs, NYSE: on Friday pushed forward its July hike forecast from Q3 2023 to June.

Analysts at Goldman Sachs stated that they believe most of the current inflation will be temporary, but that a new risk management mindset prevailed and central banks in developed markets are changing their tack.

The Bank of England appears likely to increase rates, and the Reserve Bank of Australia seems to have dropped its yield curve peg… Our U.S. economists expect that the Federal Reserve will start increasing rates in July 2022 as opposed to Q3 2023.

BONDS ON THE EDGE

Short-dated bonds have been affected by higher interest rates earlier than expected. This has caused liquidity problems in the last few weeks. Monday trading was slightly better.

In Asia trade, the two-year U.S. Treasury yields increased 2 basis points to 0.5227%. Benchmark yields for 10-year Treasury yields increased 1.2 basis points, to 1.5732%. For two-year Treasuries, October was their worst month for more than three years. [US/]

The central bank of Australia has again declined to protect its yield target, but a bid was received to re-enter Australia’s low-performing bond market. Last time the Australian three-year government bond futures went up was 12.5 ticks at 99.720. [AUD/]

RBA meeting on Tuesday. They will probably make some guidance adjustments since Monday’s 0.1% yield for April 2024 bonds was higher than 0.818%.

On Friday, the dollar gained sharply in currency markets and was slightly higher than the New Zealand or Australian dollars that are more volatile. The dollar rose to 114.26 Japanese yen, and gained 0.1% at $1.1554 for each euro. [FRX/]

Sterling fell to $1.3663, a 2-week low. Traders believe that a slight rate increase on Thursday could be a sign of a more dovish outlook.

Many expect another increase in February, and the guidance regarding whether there will be more increases is crucial. Chris Weston from Pepperstone, a broker in Melbourne, said that the BoE, just like the Fed and RBA, will push back against market prices.

“Sterling trades heavy… the bias is to a move in $1.3600.”

Commodity prices fell a bit, with benchmark futures falling 0.2% to $83.45 per barrel in early trading and futures dropping 0.6% at $83.06 per barrel. [O/R]

Gold was $1,781 per ounce, as the stronger dollar outweighed it. [GOL/]