Futures and stocks fall as data support higher Fed rate

European stock futures and Asian stocks, as well as Wall Street, fell after US services data triggered bets on a higher Fed interest rate.

The indicator of Asian stocks fell the most in a week, while almost all sectors showed a decline. Futures for US futures did not continue to rise after the third day of decline in the S&P 500 on Monday.

Treasury yields were almost unchanged in Asian trading after rising on Monday. The dollar has stabilized.

The Central Bank of Australia raised its key interest rate by 25 basis points. The yield on three-year Australian government bonds rose, and the Australian dollar continued to go up.

The yen stopped rising after the Bank of Japan confirmed its policy. The offshore yuan remained below 7 per dollar.

That being said, it is not very clear where the final Fed rate will be, with the market pointing to a high above 5% in mid-2023. It is now expected to be in the range of 3.75% to 4%.

Goldman Sachs analysts believe there is still potential for a higher terminal rate, even after the Fed chairman pointed to a possible slowdown in rate hikes.

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Beijing has also announced that it will eliminate Covid testing requirements for most public places. But the possibility of new tariffs on Chinese steel and aluminum from the US and the European Union could affect the situation.

Oil rose for the first time in three days on the back of the fact that the opening of China will support demand. Gold has been stable.

In addition, a majority of the 291 respondents in the latest MLIV Pulse survey said that leveraged loans would be the canary in the coal mine to indicate that the quality of corporate credit is deteriorating.

About 28% of respondents expect defaults to rise significantly if US rates peak at or below 5%, which is about where the market is betting that the Fed will stop rising. Another 63% see an increase in defaults if rates exceed 5%.