Wayne Cole

SYDNEY, (Reuters) – Asian shares markets started cautiously in a week that will likely see a rise of UK interest rates. Mixed reports about U.S. manufacturing jobs and U.S. employment also came out. Inflation worries were heightened by surging oil prices.

According to data released on Sunday, China’s factories slowed down in January because of a rise in COVID-19-related cases. Also, production was and remains low due to tighter lockdowns.

Markets continue to be troubled by the standoff in Ukraine. There are also concerns that a Russian invasion could cause severe gas shortages for western Europe.

Low trading conditions made it difficult for Lunar New Year, and MSCI’s widest index of Asia-Pacific shares was down 0.1%.

The index fell 0.3% after data on retail sales and industrial output surpassed expectations. The Nasdaq and Friday’s bounce were reversed by a 0.3% decline in futures on Nasdaq.

It is expected that the Bank of England will raise rates this week. This continues the global trend to tighter policy. The European Central Bank will also meet, but it is expected that they will stick with their argument that inflation would recede in the future.

Although markets have moved to pricing five Federal Reserve hikes this year to 1.25% in price, investors see rates at their highest point of historic significance at 1.75-2.0%.

BofA’s analysts think this isn’t nearly hawkish enough.

Ethan Harris, BofA’s chief economist, said that “markets have overpriced Fed hikes during the first two hiking cycles”

He adds that “We expect the Fed will start increasing rates by 25bp starting in March for seven more increases this year, and four additional hikes next year.” This would bring the terminal rate down to 2.75-3.00% at the end 2023. It should also slow down inflation and growth.

Although the Fed diary this week is sparse with three regional presidents scheduled, it is full of useful data thanks to the ISM readings and January’s jobs report.

Due to a rise in coronavirus infections and severe weather, the headline payrolls numbers will likely be weak. While the median forecast is for an increase of only 155,000, forecasts can range between a decline of 250,000 and a gain 385,000.

Analysts said that “we expect nonfarm payrolls not to increase by more than 50,000 in Jan and the unemployment rate to remain stable at 3.9%.” Barclays Note: (LON)

We see downside risk in our forecast due to the 8.8million adults who were not employed during Jan. 11, either to care for someone else or to themselves,

This month, the Fed’s hawkish turn has led to an increase of 27 basis points to 1.78% in bond prices. Bonds are now more appealing than equities or growth stocks that have stretched valuations.

This has also helped the U.S. Dollar, which rose 1.7% this month against a basket of major rivals to its highest level since July 2020, 97.441.

Last week, the euro fell 1.7% to $1.1151, its lowest level since June 2020. Surprisingly, the dollar also gained against safe haven yens. It rose 1.3% to reach 115.27 yen last Wednesday. [FRX/]

Gold has lost 2.4% this week, as higher yields are a burden on it. It was at $1,789 per ounce last week, after dropping 2.4%.

Petroleum prices reached seven-year highs after climbing for six consecutive weeks as geopolitical tensions increased concerns about tightening energy supplies. [O/R]

A barrel cost $90.97 more than it was a year ago, and a price increase of 94c to $90.97 for a barrel added 89c to $87.71.