Wayne Cole

SYDNEY, (Reuters) – Asian shares markets fell on Monday as the Federal Reserve is expected to announce that it will begin removing the vast liquidity which has fueled the enormous gains in growth stocks over the past years.

Additional concerns were raised about possible Russian aggression on Ukraine by the U.S. State Department removing family members from its Kyiv embassy staff.

The New York Times reports that President Joe Biden is considering sending thousands to NATO Allies in Europe with warships, aircraft and troops.

MSCI’s Asia-Pacific share index outside Japan fell by 0.1%, and 1.0% respectively. Wall Street futures are trying to rebound from last week’s defeat, rising 0.4% and 0.7% respectively.

Even though markets seem to be pricing in the possibility of the Fed raising rates, the expectation is that the Fed will move up to 0.25% this week and then three to 1.0% in the following months.

Oliver Allen, Capital Economics’ market economist, stated that with inflation at an alarmingly high level, the Fed will gradually reduce its ultra-accommodative Monetary Policy. This policy has been a major prop for stock prices over the past decade.

With their high-priced valuations, the prospect of rising borrowing costs and attractive bond yields caused tech stocks to suffer. This led to the Nasdaq falling 12% this year and almost 8% in the last ten days.

This was made worse by Netflix’s (NASDAQ:) slide, which plunged nearly 22% and lost $44 billion market value.

Treasuries rose on speculation that market turmoil might cause the Fed to be less hawkish last week, an extension of Greenspan’s old theory.

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 might not be able rely on the so-called “Fed put” this time, as the tightening cycle at the central bank has yet to begin and the strong U.S. economic growth suggest that a tighter policy may be warranted.

The December quarter’s U.S. GDP readings are due to be released this week. They will indicate that the country experienced growth of an average 5.4% in the fourth quarter before Omicron stepped in.

Companies reporting for this week’s earnings season are also in full swing. IBM (NYSE:), Microsoft (NASDAQ:), Johnson & Johnson (NYSE:), Intel (NASDAQ:), Tesla (NASDAQ:), Apple (NASDAQ:) and Caterpillar (NYSE:).

Treasuries bounced late last week but 10-year yields remain up 22 basis points so far, at 1.77%. This is not too far off levels seen early 2020.

This rise has supported the U.S. Dollar, which gained 0.5% last week on a basket currency and stood last at 85.647. After a rally of nearly $1.1500, the euro was held at $1.1341, after it failed to hold its recent low.

Joseph Capurso from CBA, head of international economics, stated that “the risk is that the Fed’s declaration portrays urgency to act quickly, likely in March in face of very high inflation.”

“This could encourage the markets to price in a chance of a rate rise of 50 basis points in March. We expect that under such a scenario there will be a quick reaction beyond its high of 4 January at 96.46.”

As stocks fall, the Japanese yen is more likely to get safe haven flows. This keeps the dollar at 113.66 while it’s still quite close to its low last week of 113.47.

After hitting a peak last week of $1,842 for six weeks, gold held steady at $1,833 per ounce. [GOL/]

The oil price rose once again after climbing five times in a row up to a peak of seven years. It was based on the expectation that supply will be limited and demand for crude oil would remain high. [O/R]

The price of a barrel rose 74c to $88.64, and fell 70c to $85.84