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Stock prices displayed inside the trading gallery of the RHB Investment Bank Bhd. headquarters in Kuala Lumpur, Malaysia, on November 21 2022. Picture: Samsul Said/Bloomberg
Singapore — Asian stocks retreated from three-month highs and the dollar held on to gains after strong US data that again suggested the Federal Reserve might stick longer with aggressive interest rate increases.
While investors remained hopeful of China’s economy improving with the easing of the country’s zero-Covid policy, analysts said markets had already priced in a lot of the upbeat news.
MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.4%, after climbing to a three-month high in the previous session. The benchmark has gained 21% from October lows on persistent chatter about China easing pandemic measures.
Stocks in Korea and Taiwan traded lower, while China’s broader index rose 0.6% and Japan and Hong Kong stocks were steady.
Tuesday’s muted performance in Asian equities came after global stocks and Treasury prices fell on Monday as new evidence of a strong US economy raised expectations that interest rates would stay higher for longer.
“The black swan in the room is the risk of the Fed being too late again, but this time in cutting rates,” Havard Chi, head of research at hedge fund Quarz Capital Asia, said.
“Monetary policy works with a lag and key spot indicators such as falling housing prices, rental rates, commodities and freight pricing, as well as rising layoffs and inventories, are already signalling a weakening US economy,” Chi said.
US services industry activity unexpectedly picked up in November and employment rebounded. It was the latest data showing economic momentum that could push the Federal Reserve to tighten policy further, and it followed a robust US payrolls report for November.
Futures show the market expects US short-term interest rates to peak at 5.001% in May. The expectation is about nine basis points higher than it was last week. By December 2023, the rates will have declined to 4.574%, according to futures markets.
On Monday, the Dow Jones industrial average fell 1.4%, the S&P 500 lost 1.79% and the Nasdaq Composite dropped 1.93%.
Data in Europe was still downbeat. Eurozone business activity declined for a fifth month in November, final PMI data showed, suggesting the economy was sliding into a mild recession.
Oil prices edged up, after a G7 price cap on Russian seaborne oil came into force on Monday on top of an EU embargo on imports of Russian crude by sea.
Brent crude futures ticked up 0.9% to $83.4 a barrel. Futures fell more than 3% in the previous session after the US economic data.
The dollar stayed firm versus peers, after its biggest rally in two weeks on Monday, which was helped by the strong US services data.
The Australian dollar was stuck near a one-week low ahead of a central bank rate decision, with market participants watching for signs of a pause in tightening after inflation unexpectedly cooled last month.
Treasury yields rose on expectations the Fed would continue to raise rates well into next year, though at a slower pace.
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 stocks ease from three-month highs
Singapore — Asian stocks retreated from three-month highs and the dollar held on to gains after strong US data that again suggested the Federal Reserve might stick longer with aggressive interest rate increases.
While investors remained hopeful of China’s economy improving with the easing of the country’s zero-Covid policy, analysts said markets had already priced in a lot of the upbeat news.
MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.4%, after climbing to a three-month high in the previous session. The benchmark has gained 21% from October lows on persistent chatter about China easing pandemic measures.
Stocks in Korea and Taiwan traded lower, while China’s broader index rose 0.6% and Japan and Hong Kong stocks were steady.
Tuesday’s muted performance in Asian equities came after global stocks and Treasury prices fell on Monday as new evidence of a strong US economy raised expectations that interest rates would stay higher for longer.
“The black swan in the room is the risk of the Fed being too late again, but this time in cutting rates,” Havard Chi, head of research at hedge fund Quarz Capital Asia, said.
“Monetary policy works with a lag and key spot indicators such as falling housing prices, rental rates, commodities and freight pricing, as well as rising layoffs and inventories, are already signalling a weakening US economy,” Chi said.
US services industry activity unexpectedly picked up in November and employment rebounded. It was the latest data showing economic momentum that could push the Federal Reserve to tighten policy further, and it followed a robust US payrolls report for November.
Futures show the market expects US short-term interest rates to peak at 5.001% in May. The expectation is about nine basis points higher than it was last week. By December 2023, the rates will have declined to 4.574%, according to futures markets.
On Monday, the Dow Jones industrial average fell 1.4%, the S&P 500 lost 1.79% and the Nasdaq Composite dropped 1.93%.
Data in Europe was still downbeat. Eurozone business activity declined for a fifth month in November, final PMI data showed, suggesting the economy was sliding into a mild recession.
Oil prices edged up, after a G7 price cap on Russian seaborne oil came into force on Monday on top of an EU embargo on imports of Russian crude by sea.
Brent crude futures ticked up 0.9% to $83.4 a barrel. Futures fell more than 3% in the previous session after the US economic data.
The dollar stayed firm versus peers, after its biggest rally in two weeks on Monday, which was helped by the strong US services data.
The Australian dollar was stuck near a one-week low ahead of a central bank rate decision, with market participants watching for signs of a pause in tightening after inflation unexpectedly cooled last month.
Treasury yields rose on expectations the Fed would continue to raise rates well into next year, though at a slower pace.
Reuters
JSE faces mixed Asian markets after strong US economic data
Market data — December 5 2022
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