Asian stocks fell on concern moderating inflation in the US won’t be enough to prevent the Federal Reserve from raising interest rates again next month.
(Bloomberg) — Asian stocks fell on concern moderating inflation in the US won’t be enough to prevent the Federal Reserve from raising interest rates again next month.
Shares retreated at the open in Japan, South Korea and Australia, while contracts for Hong Kong stocks extended recent losses. US futures dipped in Asian trading after both the S&P 500 and tech-heavy Nasdaq 100 closed Wednesday near session lows.
Asian equity markets are on the back foot after traders increased bets on another Fed rate hike in May following the release of the inflation data.
“The Hang Seng is set for a weak open and it’s likely to challenge the 20,000 level as it tracks Wall Street lower,” said Matt Simpson, senior market analyst at City Index in Sydney. The recession warning in the minutes of last month’s Fed policy meeting also weighed on sentiment, he said.
The dollar was little changed in early Asia trading after weakening against its major peers on Wednesday following the inflation report. The yen edged higher after North Korea launched a missile toward waters off Japan’s east coast, prompting a warning for residents to take shelter.
Swaps markets showed the odds are still in favor of a quarter-point Fed hike in May, while traders maintained their expectations the US central bank will cut rates later this year. Treasury yields stayed in a narrow range, with the two-year slightly below 4%. Australia’s bond yields ticked higher.
Gains Waver
US stocks rallied at the start of Wednesday’s trading after data showed headline US consumer prices rose less than economists forecast, while the closely watched core CPI number increased 0.4%, meeting estimates and down from the prior month’s 0.5% gain. But the equity rally wavered, with risk sentiment deteriorating in the afternoon as traders assessed the outlook for inflation, higher rates and economic growth.
The moderation in inflation isn’t fast enough for the markets to see the Fed reacting by cutting rates starting in the summer, said Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services. “We do believe that the Fed is going to stick to its hawkish higher-for-longer mantra,” she said on Bloomberg Television.
Trade Figures
On the economic front in Asia, Australian jobs and Chinese trade data are due Thursday. Aussie job growth likely slowed last month, while the unemployment rate probably rose, according to Bloomberg surveys. For China, trade figures for March may show weaker external demand taking a heavier toll on exports, Bloomberg Intelligence said in a note.
Minutes of the Fed’s March meeting showed policymakers scaled back expectations for rate hikes this year after a series of bank collapses roiled markets, and stressed they would remain vigilant for the potential of a credit crunch to further slow the economy.
Read More: Fed Leans Toward Another Hike, Defying Staff’s Recession Outlook
Fed speakers sent mixed messages on the inflation battle on Wednesday. San Francisco Fed President Mary Daly said more rate hikes may not be needed, while Richmond Fed’s Thomas Barkin said “we still have a ways to go.”
Elsewhere, oil held near the highest close in five months on signs of a tighter global market and gold rose. Bitcoin slumped, dipping back below $30,000 after climbing to the highest since June on Tuesday.
Key events this week:
- China trade, Thursday
- US PPI, initial jobless claim, Thursday
- US retail sales, business inventories, industrial production, University of Michigan consumer sentiment, Friday
- Major US banks JPMorgan Chase, Wells Fargo and Citigroup report earnings, Friday
Stocks
- S&P 500 futures fell 0.2% as of 9:12 a.m. Tokyo time. The S&P 500 fell 0.4%
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 fell 0.9%
- Japan’s Topix index fell 0.4%
- Australia’s S&P/ASX 200 Index fell 0.2%
- Hong Kong’s Hang Seng futures fell 1.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0990
- The Japanese yen was little changed at 133.10 per dollar
- The offshore yuan was little changed at 6.8813 per dollar
- The Australian dollar was little changed at $0.6690
Cryptocurrencies
- Bitcoin was little changed at $29,946.48
- Ether rose 0.6% to $1,920.79
Bonds
- The yield on 10-year Treasuries was little changed at 3.39%
- Australia’s 10-year yield advanced two basis points to 3.26%
Commodities
- West Texas Intermediate crude fell 0.2% to $83.12 a barrel
- Spot gold rose 0.1% to $2,017.45 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Carly Wanna and Cristin Flanagan.
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