Asian stocks, dollar steady as investors focus on Fed policy

Asian equities and the dollar struggled to find direction on Tuesday, with attention squarely on the timing and pace of US monetary policy normalisation, but investors took some comfort from a late rebound in US stock markets.

Federal Reserve Chair Jerome Powell appears before the Senate Banking Committee on Tuesday for consideration to a second four-year term as head of the Fed, followed by a hearing with vice chair nominee Lael Brainard on Thursday.

The fast spread of the Omicron variant of the coronavirus is also weighing on markets as US hospitalisations due to Covid-19 reached a record high on Monday.

Also Read: Contacts of Covid patients don't need to get tested unless they are in 'at risk' category: ICMR

MSCI's broadest index of Asia-Pacific shares outside Japan slipped as much as 0.3 per cent before trading steady.

The Nikkei index fell 1.3 per cent as trading resumed after a holiday on Monday. Australian stocks shed 0.8 per cent, Taiwan lost 0.4 per cent and Seoul lost 0.3 per cent.

Hong Kong ticked 0.1 per cent higher and China's 300 index nudged up.

US December consumer inflation data is due to be released on Wednesday, with headline CPI seen coming in at a red-hot 7 per cent on a year-on-year basis, boosting the case for interest rates to rise sooner rather than later.

But Hou Wey Fook, chief investment officer at DBS Bank, said he did not think inflation was in a "runaway situation".

"There are a lot of shorter term drivers like the global supply chain and economies re-opening," said Hou.

"Once we have some normalisation of those things, inflation should kind of come back down to more reasonable levels and the Fed will probably not be too aggressive," he said.

The Fed in December flagged plans to tighten policy faster than expected in response, with a rate hike perhaps as soon as March.

But that was before it became clear just how fast the Omicron variant would spread, with this week's hearings the first opportunity for Powell and Brainard to say how the current outbreak of the disease have influenced their outlook.

Some of Wall Street's biggest banks now expect four US interest rate increases this year starting in March, a more aggressive call than a week ago.

Asian equities have fared relatively better so far this year. MSCI's key benchmark has held steady, with gains seen in Indian and Hong Kong stocks, while Japanese and Chinese markets dipped.

US shares had a bruising first week of the year when the Fed signalled that it would tighten policy faster to tackle inflation and then data showed a strong US labor market, unnerving investors who had pushed equities to record highs over the holiday period.

On Monday, the Dow Jones Industrial Average shed 0.45 per cent, and the S&P 500 lost 0.14 per cent.

Technology stocks led the falls early in the day but recovered to leave the Nasdaq Composite up 0.05 per cent.

On Tuesday, the dollar index, which measures the currency against six counterparts, hovered around 95.912.

It hit a more than 16-month high of 96.938 on Nov. 24 amid increasing hawkishness from Fed policymakers, but has since been stuck between that level and 95.544, touched less than a week later.

Yields on 10-year US Treasury notes hit a high of 1.8080 per cent in US trading, levels last seen in January 2020, having shot up 25 basis points last week in their biggest move since late 2019. The yield later retreated to 1.7568 per cent.

Oil prices rose on Tuesday after two days of losses. Brent crude futures rose 0.3 per cent to $81.1 a barrel after dropping 1 per cent in the previous session.

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