SYDNEY – Asian shares slipped on Monday as markets were forced to price in ever-loftier peaks for US and European interest rates, slugging bonds globally and underpinning the dollar near multi-week highs.
Investors are braced for more challenging US data including the closely-watched ISM measures of manufacturing and services, the latter being especially important following January's startling spike in activity.
There are also at least six Federal Reserve policy makers on the speaking diary this week to offer a running commentary on the likelihood of further rate hikes.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.6 percent, having shed 2.6 percent last week. Japan's Nikkei eased 0.2 percent and South Korea percent .
EUROSTOXX 50 futures added 0.2 percent and FTSE futures 0.4 percent.
S&P 500 futures firmed 0.2 percent, while Nasdaq futures edged up 0.3 percent. Strong data on spending and core prices saw the S&P 500 crack support at 4,000 on Friday and retrace 61.2 percent of this year's rally.
Fed futures now have rates peaking around 5.42 percent, implying at least three more hikes from the current 4.50 percent to 4.75 percent band, and some chance of 50 basis points in March.
Markets have also nudged up the likely rate tops for a bevy of other central banks, including the European Central Bank and the Bank of England.
Bruce Kasman, head of economic research at JPMorgan, has added another quarter-point hike to the ECB outlook, taking it to 100 basis points. Germany's 2-year bond yield broke above 3.0 percent on Friday for the first time since 2008.
"The risk is clearly skewed toward greater action from the Fed," says Kasman.
"Demand is proving resilient in the face of tightening and lingering damage to supply from the pandemic is limiting the moderation in inflation," he added. "The transmission of the rapid shift in policy still underway also raises the risk of a recession not intended by central banks."
The Atlanta Fed's influential GDP Now tracker has the US economy growing an annualised 2.7 percent in the first quarter, showing no slowdown from the December quarter.
Higher rates and yields stretch valuations for equities, especially those with high PE ratios and low dividend payouts, which includes much of the tech sector.
Shares in the United States trade at a price to earnings multiples of around 17.5 times forward earnings, compared to 12 times for non-US shares.
Ten-year Treasury bonds also yield more than twice the estimated dividend yield of the S&P 500 Index, and with much less risk.
With the earnings season almost over, around 69 percent of earnings have surprised on the upside, compared to a historical average of 76 percent, and annual earnings growth is running around -2 percent.
The upward shift in Fed expectations has been a boon for the US dollar, which climbed 1.3 percent on a basket of currencies last week to last stand at 105.220.
The euro was pinned at $1.0554, after touching a seven-week low of $1.0536 on Friday.
The dollar scaled a nine-week top on the yen to last stand at 136.10, aided in part by dovish comments from top policy makers at the Bank of Japan.
The rise in the dollar and yields has been a burden for gold, which shed 1.7 percent last week and was last lying at $1,813 an ounce.
Oil prices edged higher as the prospect of lower Russian exports was balanced by rising inventories in the United States and concerns over global economic activity.
Brent gained 7 cents to $83.23 a barrel, while US crude rose 12 cents to $76.44 per barrel.