Asian shares inch lower as investors mull Fed’s policy plans
Excitement of cooling US inflation fizzles out after latest jobless claims report shows labour market remains tight
17 May 2024 - 08:06
byAnkur Banerjee
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A man walks past an electronic screen outside a brokerage in Tokyo, Japan March 21, 2024. File photo: REUTERS
Singapore — Asian stocks slipped on Friday as traders pondered the near-term US monetary policy path after Federal Reserve officials suggested that interest rates may need to stay higher for longer even as inflation shows early signs of easing.
Data on Wednesday showed cooling US consumer price inflation, prompting markets to swiftly price in at least two rate cuts during 2024 but the excitement soon fizzled out as the latest report showed the labour market remains tight, while central bankers were still cautious about inflation.
Traders are pricing in about 47 basis points (bps) of easing in 2024 from the Fed, with a rate cut in November fully priced in.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.36% after touching a two-year high on Thursday. The index was still set for an increase of 2% this week for its fourth consecutive week of gains.
European bourses are set to carry on with the listless mood and open lower, with Eurostoxx 50 futures down 0.34% and FTSE futures 0.15% lower.
“Following the incremental softening of the US data, this is probably as far as the risk rally can go in the absence of tier-1 data over the coming week,” said Nicholas Chia, Asia macro strategist at Standard Chartered.
While the data this week offered the Fed good news on two fronts, policymakers have not openly shifted views yet about the timing of rate cuts investors are convinced will start in 2024.
Monetary policy is “restrictive” and “is in a good place”, Federal Reserve Bank of New York president John Williams said. “I don’t see any indicators now telling me ... there’s a reason to change the stance of monetary policy now.”
Data on Thursday showed the number of Americans filing new claims for jobless benefits fell last week, indicating that labour market conditions remain fairly tight even as job growth is cooling.
Overnight, the Dow rose as high as 40,051.05 while the S&P 500 and Nasdaq also hit record highs before gradually losing steam and finishing slightly lower on the day.
Japan’s Nikkei eased 0.34%. China stocks fell, with the blue-chip gauge down 0.20%. Hong Kong’s Hang Seng index was the bright spot for Asia, touching its highest since August 2022. It was last up 0.29%.
Shares of Chinese property developers rose on Friday as investors expected authorities to announce more measures to stabilise the crisis-hit sector, with fresh data showing the fastest drop in new home prices in more than nine years.
China will allow local government authorities to buy some homes at “reasonable” prices to provide affordable housing, vice-premier He Lifeng told an online meeting on housing policy on Friday, the official news agency, Xinhua, said.
In the currency markets, the dollar headed for its largest weekly fall versus the euro in two-and-a-half months. The euro is up about 1% against the dollar and was last at $1.08595.
The yen weakened 0.23% to ¥155.80 to the dollar, giving back some of the gains it made after the mild US consumer price index (CPI) report earlier in the week.
The Japanese currency has fallen around 9.5% this year as the Bank of Japan (BOJ) has kept monetary policy loose while higher US interest rates have drawn money towards US bonds and the dollar.
Tokyo is suspected to have intervened on at least two days in late April and early May to support the yen after it tumbled to lows last seen more than three decades ago.
“While the weaker US data should benefit low-yielders like the yen, the recent price action suggests the Japanese authorities may have more to do beyond verbal jawboning if they intend to keep speculators at bay,” Standard Chartered’s Chia said.
“Paring back bond purchases and further rate hikes in the second half of 2024 may be inevitable if the authorities are serious about pushing the dollar-yen pair lower.”
The BOJ on Friday kept the amounts unchanged at a regular bond buying operation, after unexpectedly reducing purchases of bonds with five to 10 years left to maturity at the start of the week.
In commodities, oil prices rose, with global benchmark Brent set for its first weekly increase in three weeks on signs of improving global demand.
US crude rose 0.14% to $79.18 a barrel and Brent was 0.3% higher at $83.52 a barrel.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Asian shares inch lower as investors mull Fed’s policy plans
Excitement of cooling US inflation fizzles out after latest jobless claims report shows labour market remains tight
Singapore — Asian stocks slipped on Friday as traders pondered the near-term US monetary policy path after Federal Reserve officials suggested that interest rates may need to stay higher for longer even as inflation shows early signs of easing.
Data on Wednesday showed cooling US consumer price inflation, prompting markets to swiftly price in at least two rate cuts during 2024 but the excitement soon fizzled out as the latest report showed the labour market remains tight, while central bankers were still cautious about inflation.
Traders are pricing in about 47 basis points (bps) of easing in 2024 from the Fed, with a rate cut in November fully priced in.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.36% after touching a two-year high on Thursday. The index was still set for an increase of 2% this week for its fourth consecutive week of gains.
European bourses are set to carry on with the listless mood and open lower, with Eurostoxx 50 futures down 0.34% and FTSE futures 0.15% lower.
“Following the incremental softening of the US data, this is probably as far as the risk rally can go in the absence of tier-1 data over the coming week,” said Nicholas Chia, Asia macro strategist at Standard Chartered.
While the data this week offered the Fed good news on two fronts, policymakers have not openly shifted views yet about the timing of rate cuts investors are convinced will start in 2024.
Monetary policy is “restrictive” and “is in a good place”, Federal Reserve Bank of New York president John Williams said. “I don’t see any indicators now telling me ... there’s a reason to change the stance of monetary policy now.”
Data on Thursday showed the number of Americans filing new claims for jobless benefits fell last week, indicating that labour market conditions remain fairly tight even as job growth is cooling.
Overnight, the Dow rose as high as 40,051.05 while the S&P 500 and Nasdaq also hit record highs before gradually losing steam and finishing slightly lower on the day.
Japan’s Nikkei eased 0.34%. China stocks fell, with the blue-chip gauge down 0.20%. Hong Kong’s Hang Seng index was the bright spot for Asia, touching its highest since August 2022. It was last up 0.29%.
Shares of Chinese property developers rose on Friday as investors expected authorities to announce more measures to stabilise the crisis-hit sector, with fresh data showing the fastest drop in new home prices in more than nine years.
China will allow local government authorities to buy some homes at “reasonable” prices to provide affordable housing, vice-premier He Lifeng told an online meeting on housing policy on Friday, the official news agency, Xinhua, said.
In the currency markets, the dollar headed for its largest weekly fall versus the euro in two-and-a-half months. The euro is up about 1% against the dollar and was last at $1.08595.
The yen weakened 0.23% to ¥155.80 to the dollar, giving back some of the gains it made after the mild US consumer price index (CPI) report earlier in the week.
The Japanese currency has fallen around 9.5% this year as the Bank of Japan (BOJ) has kept monetary policy loose while higher US interest rates have drawn money towards US bonds and the dollar.
Tokyo is suspected to have intervened on at least two days in late April and early May to support the yen after it tumbled to lows last seen more than three decades ago.
“While the weaker US data should benefit low-yielders like the yen, the recent price action suggests the Japanese authorities may have more to do beyond verbal jawboning if they intend to keep speculators at bay,” Standard Chartered’s Chia said.
“Paring back bond purchases and further rate hikes in the second half of 2024 may be inevitable if the authorities are serious about pushing the dollar-yen pair lower.”
The BOJ on Friday kept the amounts unchanged at a regular bond buying operation, after unexpectedly reducing purchases of bonds with five to 10 years left to maturity at the start of the week.
In commodities, oil prices rose, with global benchmark Brent set for its first weekly increase in three weeks on signs of improving global demand.
US crude rose 0.14% to $79.18 a barrel and Brent was 0.3% higher at $83.52 a barrel.
Gold prices were last at $2,378.41/oz.
Reuters
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