(Bloomberg) — Asian stocks edged lower following hawkish comments by Jerome Powell that helped fuel a third straight drop in the S&P 500 and saw two-year Treasury yields briefly climb to 5%.
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MSCI’s Asia Pacific Index dropped as much as 0.4%, briefly erasing all of its gains for the year, amid worries about higher-for-longer interest rates and geopolitical tensions. Equity benchmarks fell in Japan and South Korea, while shares in Hong Kong rose. Chinese equities fluctuated at the open.
Treasury yields traded in a narrow range after climbing to fresh 2024 highs Tuesday when Federal Reserve chief Powell said it will likely take longer to have confidence that inflation is headed toward the central bank’s target. The remarks represented a shift in his message after a key measure of inflation exceeded forecasts for a third month.
After recent strong US data, the market is now pricing in 25-to-50 basis point reductions in the Fed rate this year starting July or September, said Kieran Calder, head of equity research for Asia at Union Bancaire Privée in Singapore. “The resulting stronger dollar is a headwind for most Asia markets and for Japan, pushing the yen towards the increasingly uncomfortable 155 per dollar level.”
The dollar edged lower versus most of its major peers Wednesday after seeing its best five-day gain since October 2022. The greenback’s resilience has hammered Asian currencies in recent days, prompting authorities to ramp up defense against rapid depreciation. The won jumped Wednesday following fresh warnings from South Korean officials.
Elsewhere, New Zealand home-grown price pressures persisted in the first quarter even as headline inflation slowed to its weakest in almost three years. The yield on the country’s two-year government bonds rose eight basis points to 4.99% while the kiwi climbed after the report.
Rate-Cut Delay
After starting the year by pricing in as many as six rate cuts in 2024, or 1.5 percentage points of easing, traders are now doubtful there will even be a half point of reductions. Market-implied expectations for Fed rate cuts — which have collapsed in the past two weeks — declined further after Powell’s comment on inflation.
On Tuesday, Fed Vice Chair Philip Jefferson said he expects inflation will continue to moderate with interest rates at their current level but persistent price pressures would warrant holding borrowing costs high for longer. Richmond Fed President Thomas Barkin said some recent data, including the consumer price index, has not “been supportive” of a soft landing.
Amid all the anxiety, the widely watched MOVE index, an options-based measure of expected volatility in Treasuries, spiked to the highest since January.
Key events this week:
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Eurozone CPI, Wednesday
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Fed issues its Beige Book, Wednesday
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Cleveland Fed President Loretta Mester speaks, Wednesday
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Fed Governor Michelle Bowman speaks, Wednesday
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BOE Governor Andrew Bailey speaks, Wednesday
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Taiwan Semiconductor earnings, Thursday
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US Conf. Board leading index, existing home sales, initial jobless claims, Thursday
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Fed Governor Michelle Bowman speaks, Thursday
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New York Fed President John Williams speaks, Thursday
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Atlanta Fed President Raphael Bostic speaks, Thursday
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BOE Deputy Governor Dave Ramsden and ECB Governing Council member Joachim Nagel speak, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 9:46 a.m. Tokyo time
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Hang Seng futures fell 0.2%
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Japan’s Topix fell 1.1%
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Australia’s S&P/ASX 200 was little changed
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Euro Stoxx 50 futures rose 0.4%
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Nasdaq 100 futures were little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0620
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The Japanese yen was little changed at 154.67 per dollar
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The offshore yuan was little changed at 7.2659 per dollar
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The Australian dollar rose 0.2% to $0.6412
Cryptocurrencies
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Bitcoin rose 1.4% to $63,907.01
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Ether rose 0.6% to $3,090.82
Bonds
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The yield on 10-year Treasuries was little changed at 4.67%
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Japan’s 10-year yield advanced one basis point to 0.875%
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Australia’s 10-year yield advanced five basis points to 4.38%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi and Rob Verdonck.
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