Asian shares rise amid Fed’s mixed messages

Singapore — Asian equities climbed on Tuesday but could not break March’s highs as mixed messages from US Federal Reserve policymakers left doubts hanging over the timing of interest rate cuts.

The risk of Japan intervening to prevent further falls in the yen put a little pressure on the dollar, however, it rose against the yuan on speculation that China may tolerate a weaker currency.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, with gains for South Korean chipmakers SK Hynix and Samsung Electronics leading the Kospi up 1.2%.

Japan’s rocketing Nikkei was steady, as was the yen at ¥151.31 to the dollar.

Overnight, Chicago Fed president Austan Goolsbee said he had pencilled in three rate cuts for 2024, while Fed governor Lisa Cook urged caution and Atlanta Fed president Raphael Bostic reiterated Friday remarks trimming his expectations to one cut.

The diversity of views throws a few wild cards into the policy outlook while markets wait on the next US inflation indicators due when many markets will be closed for Good Friday.

“Comments by FOMC [Federal open market committee] participants suggest to us that four voters ... see zero, one or two cuts this year,” said Standard Chartered strategist Steve Englander.

“We still think [chair Jerome] Powell has eight votes for easing, but he probably does not want an 8-4 vote on the first cut of the cycle. Rather, he may hope that good inflation outcomes will allow him to swing a couple of votes into the cutting camp in the coming months.”

Interest rate futures price about three Fed rate cuts in 2024 and about a three-in-four chance of the first cut in June.

US two-year yields, which track short-term interest rate expectations, rose in New York trade overnight then fell 4.5 basis points (bps) in the Asia morning to 4.58%.

S&P 500 futures rose 0.1% and the cash index closed 0.3% lower overnight.

In foreign exchange, Monday’s rhetoric from Japan’s top currency diplomat, Masato Kanda, kept the yen steady as traders weigh the risk of Japan buying heavily. Kanda said the yen’s recent slide was “strange” and “speculative”.

The Bank of Japan (BOJ) lifted interest rates last week but the yen has fallen near to three-decade lows on the dollar.

“Much like in 2016, when the BOJ cut rates to negative and (dollar-yen) went down, this month’s BOJ decision to exit negative rates is a nothing burger and a red herring for (dollar-yen),” said Spectra Markets President Brent Donnelly.

“The pair continues to follow some combination of US yields and Nikkei, with yields the primary driver.”

China’s yuan opened steady after a stronger-than-expected fixing of its trading band, but selling pressure soon drove it to the weak side of its 200-day moving average at 7.2165 to the dollar.

Markets were unsettled by a sharp drop in the yuan on Friday, after months of tight trading, and some speculate China is loosening its grip on the currency to allow it to fall.

“Whether this reflects a shift in FX policy remains to be seen but accommodative monetary conditions are necessary in the face of growth headwinds,” said BofA Securities strategist Adarsh Sinha.

“If [yuan] depreciation sustains and coincides with a weaker credit impulse, Asia FX is vulnerable.”

Later on Tuesday, the Reserve Bank of New Zealand’s chief economist is due to speak and US manufacturing, services and consumer confidence figures are due. US core personal consumption expenditures (PCE) data is due on Friday.

Gold and oil prices were broadly steady in commodities trade, with spot gold at $2,169/oz and Brent crude futures up 24c a barrel to $86.99.

Bitcoin hovered just above $70,000 after rising sharply on Monday.

Reuters