Equity markets in Asia are likely to face selling pressure as worsening risk sentiment drove US stocks to session lows after the Federal Reserve signaled interest rates will be higher for longer.
(Bloomberg) — Equity markets in Asia are likely to face selling pressure as worsening risk sentiment drove US stocks to session lows after the Federal Reserve signaled interest rates will be higher for longer.
Futures for benchmarks in Australia and Japan declined, while a gauge for US-listed Chinese stocks fell for a fourth straight session. Big tech led losses on Wall Street, with the Nasdaq 100 down 1.5% and S&P 500 dropping almost 1%. Treasury two-year yields, which are more sensitive to imminent Fed moves, hit the highest since 2006. Contracts for US equities were flat in early Asian trading.
The Fed held its target range at 5.25% to 5.5%, while updated quarterly projections showed 12 of 19 officials favored another rate hike in 2023. Policymakers also see less easing next year, with the median forecast for the federal funds rate at 5.1% by year-end, up from 4.6% when projections were last updated in June.
Jerome Powell said officials are “prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we’re confident that inflation is moving down sustainably toward our objective.” A “soft landing” for the US economy is a primary objective for the central bank, he said.
In light of the still strong economic data, the hawkish pause and threat of a hike should not be a surprise, according to Seema Shah, chief global strategist at Principal Asset Management.
“It’s the 2024 projections where all the fun resides,” Shah said. “The new projections suggest that the Fed has a fairly strong degree of confidence in its outlook for a soft landing and, in turn, that there will be very minimal space for policy easing next year. The dot plot for next year has certainly rammed home the message of higher for longer.”
Swap contracts priced in greater-than-even odds of another quarter-point hike this year and fewer rate cuts next year than previously anticipated. The dollar erased losses, gaining versus most of its major peers and sending the yen back above 148 per dollar to a fresh November high.
Central banks will be in focus Thursday as well, with officials in the Philippines, Indonesia and the UK set to announce policy decisions. Bangko Sentral ng Pilipinas is likely to lift rates by a quarter point, while Indonesian policymakers are seen keeping rates on hold, according Bloomberg Economics.
After UK inflation unexpectedly slowed, traders pared bets on further tightening steps by the Bank of England, with the market pricing a 50% chance of a quarter-point hike later Thursday. They are also betting that if the BOE does hike, it will be its last. Goldman Sachs and Nomura went further, saying rates have already peaked. Bloomberg Economics expects an increase.
“There is now a real possibility the BOE pauses its hiking cycle this month or, perhaps more likely, raises rates while sending a signal that it thinks the move will be the last of the cycle, according to economists Dan Hanson and Ana Andrade.
The series of policy meetings this week will wrap up with the Bank of Japan on Friday.
Elsewhere, oil’s breakneck rally is taking a breather as a smaller-than-expected drop in US crude stockpiles bolstered technical resistance to further gains, with West Texas Intermediate’s futures dropping below $90 a barrel.
Corporate Highlights
- FedEx Corp. rose in late trading after reporting profit that topped analyst estimates and raising its earnings forecast.
- Marketing and data automation provider Klaviyo Inc. climbed 9.2% in its trading debut after topping its goal to raise $576 million in an initial public offering that could set the pace for listings by other startups.
- Instacart briefly sank below its IPO price on just its second day of trading, underscoring the difficulty the company will have convincing investors of its plans to expand into advertising and the grocery software business.
- Pinterest Inc. climbed, with analysts positive on the social-networking company in the wake of its investor day event.
- International Business Machines Corp. advanced after being rated outperform at RBC Capital Markets.
- Coty Inc. rose after raising its sales outlook for the current fiscal year, citing continued robust demand for higher-end fragrances.
- Chewy Inc. fell after the pet-supplies retailer was downgraded to market perform from outperform at Oppenheimer & Co.
Key events this week:
- Eurozone consumer confidence, Thursday
- Bank of England policy meeting, Thursday
- US leading index, initial jobless claims, existing home sales, Thursday
- China’s Bund Summit, Friday
- Japan CPI, PMIs, Friday
- Bank of Japan rate decision, Friday
- Eurozone S&P Global Eurozone PMIs, Friday
- US S&P Global Manufacturing PMI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 7:11 a.m. Tokyo time. The S&P 500 fell 0.9%
- Nasdaq 100 futures fall 0.1%. The Nasdaq 100 fell 1.5%
- Nikkei 225 futures fell 0.4%
- Hang Seng futures rose 0.1%
- S&P/ASX 200 futures fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $1.0660
- The Japanese yen was little changed at 148.21 per dollar
- The offshore yuan was little changed at 7.3071 per dollar
- The Australian dollar was little changed at $0.6447
Cryptocurrencies
- Bitcoin was little changed at $27,078.19
- Ether was little changed at $1,624.06
Commodities
- West Texas Intermediate crude fell 0.4% to $89.26 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth.
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