Stocks in Asia dropped alongside US equity futures after comments by two Federal Reserve officials that they were considering 50 basis-point interest rate hikes to battle persistently high inflation.
(Bloomberg) — Stocks in Asia dropped alongside US equity futures after comments by two Federal Reserve officials that they were considering 50 basis-point interest rate hikes to battle persistently high inflation.
Shares opened lower in Japan, South Korea and Australia on Friday, while Hang Seng futures pointed to tiny gains. Contracts for both the S&P 500 and Nasdaq 100 were down after the underlying indexes sank more than 1% on Thursday.
The dollar advanced against all of its Group-of-10 currency counterparts while the Chinese yuan declined for a sixth straight day. Treasuries extended their losses slightly. The yields on two-year and 10-year Treasuries both set 2023 highs this week.
Federal Reserve Bank of Cleveland President Loretta Mester said she had seen a “compelling economic case” for rolling out another 50 basis-point hike, and St. Louis President James Bullard said he would not rule out supporting a half-percentage-point increase at the Fed’s March meeting, rather than a quarter point. Their warnings came after US producer prices rebounded in January by the most since June.
Australian bond yields rose, following the moves in Treasuries, and as the chief of the nation’s central bank spoke in parliament. Governor Philip Lowe said further rate increases would be needed to tame rising prices as policy makers balanced two key risks: “One is the risk of not doing enough, which would result in high inflation persisting and then later proving very costly to get down,” he said. “The other is the risk that we move too fast, or too far.”
In the US, further data on Thursday added to the bearish mood, with new home construction retreating for a fifth month in January as elevated mortgage rates continue to keep a lid on housing demand. Weekly jobless claims fell to 194,000, below expectations of 200,000.
“You will not sustainably get to 2% inflation when you have a labor market that is this tight,” Steve Chiavarone, senior portfolio manager and head of multi-asset solutions at Federated Hermes, said by phone. “It is so completely out of whack.”
Investors have been upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing past 5.2% in July, according to trading in the US money markets. That compares with a perceived peak rate of 4.9% just two weeks ago, and the central bank’s current 4.5% to 4.75% target range.
Bitcoin retreated after three days of gains that were fueled by easing fears of a US regulatory crackdown.
In commodities, oil headed for a weekly drop as rising US inventories and the prospect of further tightening by the Federal Reserve eclipsed the lift from more signs that Chinese energy demand is improving. Gold fell.
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.2% as of 9:14 a.m. Tokyo time. The S&P 500 fell 1.4%
- Nasdaq 100 futures fell 0.4%. The Nasdaq 100 fell 1.9%
- Japan’s Topix index fell 0.4%
- South Korea’s Kospi index fell 0.7%
- Australia’s S&P/ASX 200 Index fell 0.5%
- Hong Kong’s Hang Seng futures rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0664
- The Japanese yen fell 0.2% to 134.15 per dollar
- The offshore yuan fell 0.1% to 6.8758 per dollar
- The Australian dollar fell 0.2% to $0.6866
Cryptocurrencies
- Bitcoin fell 4% to $23,552.62
- Ether fell 2.3% to $1,643.71
Bonds
- The yield on 10-year Treasuries was little changed at 3.86%
- Australia’s 10-year yield advanced six basis points to 3.82%
Commodities
- West Texas Intermediate crude fell 0.8% to $77.88 a barrel
- Spot gold fell 0.2% to $1,833.58 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Isabelle Lee and Emily Graffeo.
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