Television cameramen wait for the market to open in front of a large screen showing stock prices at the Tokyo Stock Exchange in Tokyo, Japan October 2, 2020. REUTERS/Kim Kyung-Hoon

SYDNEY, Jan 24 (Reuters) – Asian stock markets fell on Monday, with the Federal Reserve expected to confirm that it will soon start draining the massive liquidity that has fueled huge gains in growth stocks in recent years.

Added to the caution are concerns about a possible Russian attack on Ukraine, with the US State Department removing family members of staff from its embassy in Kyiv.

The New York Times has reported that President Joe Biden plans to send thousands of American troops to NATO allies in Europe, as well as warships and planes. Read more

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) was down 0.1% and the Japanese Nikkei (.N225) was down 1.0%. However, Wall Street futures were trying to rebound from last week’s beating, with S&P 500 futures up 0.4% and Nasdaq futures up 0.7%.

Pissed off markets are now even pricing in a slim chance of the Fed raising rates this week, though the first move to 0.25% is expected in March and three more to 1.0% by the end. of the year.

“With extremely high inflation, the Fed is poised to phase out the ultra-accommodative monetary policy that has been key support for stock prices for over a decade now,” market economist Oliver Allen said. at Capital Economics.

The prospect of higher borrowing costs and more attractive bond yields has weighed on tech stocks with their lofty valuations, leaving the Nasdaq down 12% so far this year and the S&P 500 nearly 8%.

The rout was exacerbated by a drop in Netflix, which fell nearly 22%, losing $44 billion in market value.

Such was the magnitude of the losses that Treasuries actually rallied late last week on speculation that the bonfire of market wealth might scare the Fed into being less hawkish, a variation of the Greenspan’s old statement.

However, Allen noted that even with the recent drop, the S&P 500 was still 40% above its end-2019 level and the Nasdaq 60%.

“Investors may not be able to rely on a so-called ‘Fed put’ this time around, given that the central bank’s tightening cycle hasn’t even started and the strength of the US economy suggests that a much tougher policy is warranted.”

Indeed, the first reading of US gross domestic product for the December quarter is due this week and is expected to show 5.4% annualized growth before Omicron steps on the brakes.

Earnings season is also well underway and companies reporting this week include IBM, Microsoft (MSFT.O), Johnson & Johnson, Intel, Tesla (TSLA.O), Apple (AAPL.O) and Caterpillar.

While Treasuries rebounded late last week, 10-year yields are still up 22 basis points on the month so far at 1.77% and not far off the levels seen for the last time in early 2020.

The rise generally supported the US Dollar, which added 0.5% on a basket of currencies last week and last stood at 85.647. The Euro was stuck at $1.1341, having failed to sustain a recent rally near $1.1500.

“The risk is that the Fed’s statement portrays the urgency to act quickly, probably in March, in the face of very high inflation,” said Joseph Capurso, head of international economics at the ABC.

“It could even encourage markets to price the risk of a 50bp rate hike in March and in that scenario we expect a knee-jerk reaction above its January 4 high at 96, 46.”

The Japanese yen tends to benefit from safe-haven flows as stocks tumble, keeping the dollar weak at 113.66 and uncomfortably close to last week’s low at 113.47.

Gold held steady at $1,833 an ounce, after hitting a six-week high of $1,842 last week.

Oil prices rose again after climbing for five straight weeks to a seven-year high as demand was expected to remain strong and supplies tight.

Brent crude added 74 cents to $88.64 a barrel, while U.S. crude rose 70 cents to $85.84.

Reporting by Wayne Cole; Editing by Sam Holmes

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