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Asian shares rise as Wall Street futures stabilise

Wall Street

S&P 500 futures and Nasdaq futures rose 0.3%, while EUROSTOXX 50 futures rallied 1.2% and FTSE futures added 0.6%

Asian shares swung higher on Monday as Wall Street futures stabilised, though tests loom ahead as UK interest rates are expected to rise this week and surging oil prices add to worries over inflation.

Data out on Sunday showed China’s factory activity slowed in January as a resurgence of COVID-19 cases and tough lockdowns hit production and demand.

Lunar New Year holidays made for thin conditions and MSCI’s broadest index of Asia-Pacific shares outside Japan nudged up 0.6% in slow trade.

Japan’s Nikkei rose 1.3% from a 14-month trough, though local data on industrial output and retail sales undershot forecasts.

S&P 500 futures and Nasdaq futures recouped early losses to rise 0.3%, while EUROSTOXX 50 futures rallied 1.2% and FTSE futures 0.6%.

The Bank of England is likely to hike rates again this week, continuing the global trend toward tighter policy. The European Central Bank also meets but is expected to stick to its argument that inflation will recede over time.

Markets have swung to pricing in five hikes from the Federal Reserve this year to 1.25%, though investors still see rates peaking at a historically low 1.75-2.0%.

Analysts at BofA think that is not nearly hawkish enough.

We point out that markets have underpriced Fed hikes at the start of the last two hiking cycles and we think that will be the case again, says BofA chief economist Ethan Harris.

Starting in March, we expect the Fed to start raising rates by 25bp at every remaining meeting this year for a total of seven hikes, with four more hikes next year, he adds. This would take the terminal rate to 2.75-3.00% by the end of 2023, which should slow down growth and inflation.

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