Stocks in Asia slide as focus shifts to Fed

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SINGAPORE, Oct 28 (Reuters) – Asian shares were set to snap a three-day winning streak on Friday as investors grappled with mixed earnings reports and looked to next week’s Federal Reserve meeting for clues on whether a pivot on the pace of rate hikes is on the table.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was 1.56% lower at 433.92, but above the two and half year low of 427.42 it touched on Monday. The index is down 4% for the month and roughly 31% for the year.

European stock futures indicated stocks were set to fall, with the Eurostoxx 50 futures down 0.75%, German DAX futures down 0.71% and FTSE futures down 0.61%.

Disappointing earnings reports have added to the gloom, with Amazon.com (AMZN.O) the latest tech behemoth to face heavy punishment from investors after forecasting a slowdown in sales.

Resilient corporate profits have been one bright spot in an otherwise dismal year, although the recent dismal results are increasing doubts over how long this can last.

“The concern is becoming increasingly related to earnings,” said Frank Benzimra, head of Asia equity strategy at Societe Generale, adding that interest rate hikes remain part of the worry.

“It is the earnings and the risk of a recession which is hurting the market.”

In the currency market, the Japanese yen swirled between losses and gains against the dollar after the Bank of Japan held on to its dovish policy and maintained ultra-low interest rates but raised its inflation target.

The widely expected move from BOJ comes after the European Central Bank on Thursday raised interest rates again, but said “substantial” progress had already been made in its bid to fight off a surge in inflation.

Investors now turn their attention to the Federal Reserve meeting next week. While a 75 basis point rate hike at the conclusion of its Nov. 1-2 policy meeting is all but assured, the likelihood of a smaller, 50 basis-point hike in December was 55%, according to CME’s FedWatch tool.

“I don’t think there will be any surprise here (in terms of rate hike), but it will be more on the message that the Fed will deliver,” said Societe Generale’s Benzimra.

The less hawkish comments from the ECB added to expectations that central banks are likely to slow the pace of monetary tightening, especially after the Bank of Canada surprised the market by delivering a smaller-than-anticipated rate hike on Wednesday.

Markets have started to trade a Fed pivot again, but this is defined as hiking in smaller increments, not as a “proper” pivot from hikes to cuts, according to Citi strategists, noting that an actual pause is still some time away.

Over in China, the stock market (.SSEC) fell 0.8%, with Hong Kong’s Hang Seng Index (.HSI) down 2.3%, rounding up a rough week after a brutal sell-off on Monday. Bleak industrial profit figures and widening COVID-19 outbreaks have also weighed on sentiment.

Elsewhere, Japan’s Nikkei (.N225) fell 0.45%, while Australia’s S&P/ASX 200 index (.AXJO) lost 0.87%.

The yen strengthened 0.01% versus the greenback at 146.27 per dollar, while the dollar index fell 0.109%.

The euro is up 0.17% to $0.9979, threatening to rise above parity again, following a more than 1% slide overnight, after the dovish tone from ECB.

Oil prices fell on Friday after China, the world’s top crude oil importer, widened its COVID-19 curbs, but were poised for a weekly gain on supply concerns.

Editing by Jacqueline Wong and Ana Nicolaci da Costa

Our Standards: The Thomson Reuters Trust Principles.

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