(Bloomberg) — Asian stocks declined as strong US economic data further reduced expectations for a swift Federal Reserve pivot to monetary easing. Treasuries gained after another slump Monday.
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Equities in Japan and Australia opened lower, while futures for Hong Kong shares pointed to modest gains after Beijing stepped up efforts to ease a stock selloff. US equity futures were steady after the S&P 500 dropped 0.3% and the Nasdaq 100 shed 0.2% Monday.
The 10-year Treasury yield fell three basis points in early Asian trading. That followed another bout of heavy selling Monday that pushed the rate up by 14 basis points, marking the biggest two-day jump since June 2022.
The Treasuries selloff on Monday came after the Institute for Supply Management’s services gauge hit a four-month high while prices picked up. The news jolted trading when investors were already digesting cautious views from some Fed speakers including Jerome Powell.
The net effect is a stronger economy that gives the central bank longer to reduce rates. Fed swaps almost wiped out the odds of a March rate move, and the chances of a May cut have also been reduced.
The “one-two punch” prevented market players from achieving further upside, according to Jose Torres at Interactive Brokers. JPMorgan Chase & Co. strategist Marko Kolanovic said that “absent a material shock, we think this year’s easing will prove more moderate than markets have priced.”
Australian and New Zealand yields were moderately higher. The Reserve Bank of Australia will release updated forecasts at its first policy meeting of the year on Tuesday, with economists unanimously expecting the cash rate will be kept at 4.35%. Authorities are expected to maintain a hawkish stance given inflation, while cooling, is still elevated.
The dollar was steady after it hit its strongest since November in a muted start to trading in currency markets. The yen was little changed at just above 148 per dollar.
In Asia, focus will return to China, where concern over the torpid economy has spilled over into a deepening stock rout. That’s led authorities to tighten trading restrictions on domestic institutional investors as well as some offshore units.
Meanwhile, the nation’s smallest stocks are flashing a warning about the potential downside for the world’s second-largest equity market if Beijing fails to follow through on a highly anticipated rescue campaign.
Annual wage negotiations in Japan have kicked off in earnest, as its central bank looks for evidence of a virtuous wage-price cycle that would allow it to exit from the world’s last negative rate regime.
In the US, Fed Bank of Minneapolis President Neel Kashkari said officials have time to gauge incoming data before easing while his Chicago counterpart Austan Goolsbee reiterated he’d like to see more of the favorable inflation data.
The world’s major central banks mustn’t drop their guard in the fight against inflation as it’s too soon to say if sharp interest rate increases have contained underlying price pressures, the OECD said. Meantime, the latest Bloomberg Markets Live Pulse survey showed American shoppers won’t be deterred by mounting credit-card bills or the recent ripple of layoffs. More than half of 463 respondents said spending will stay strong or get even stronger in 2024.
“The ongoing strength of the US economy relative to most of its G-10 peers is one of the key reasons why we have held a counter consensus bullish view on the USD since September 2023,” said Dominic Bunning at HSBC.
Elsewhere, gold inched higher to trade at around $2,027 per ounce. West Texas Intermediate was slightly lower. Bitcoin edged higher at above $42,500.
Key events this week:
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Reserve Bank of Australia’s rate decision, Tuesday
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Eurozone retail sales, Tuesday
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Germany factory orders, Tuesday
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UBS earnings, Tuesday
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Bank of Canada Governor Tiff Macklem speaks, Tuesday
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Fed’s Loretta Mester and Patrick Harker speak, Tuesday
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Germany industrial production, Wednesday
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Walt Disney earnings, Wednesday
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Fed’s Adriana Kugler and Tom Barkin speak, Wednesday
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China PPI, CPI, Thursday
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US wholesale inventories, initial jobless claims, Thursday
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Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing on the Financial Stability Oversight Council annual report, Thursday
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Pharma CEOs speak at a Senate panel on prescription drug prices, Thursday
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ECB Chief Economist Philip Lane speaks, Thursday
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ECB publishes economic bulletin, Thursday
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US CPI revisions, Friday
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Germany CPI, Friday
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President Joe Biden hosts German Chancellor Olaf Scholz at the White House, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 9:44 a.m. Tokyo time
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Nasdaq 100 futures were little changed
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Hang Seng futures rose 0.5%
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Japan’s Topix fell 0.7%
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Australia’s S&P/ASX 200 fell 0.8%
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Euro Stoxx 50 futures rose 0.3%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0744
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The Japanese yen was little changed at 148.62 per dollar
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The offshore yuan was little changed at 7.2176 per dollar
Cryptocurrencies
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Bitcoin rose 0.5% to $42,559.31
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Ether rose 0.5% to $2,297.34
Bonds
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The yield on 10-year Treasuries declined two basis points to 4.14%
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Japan’s 10-year yield advanced 1.5 basis points to 0.730%
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Australia’s 10-year yield advanced four basis points to 4.14%
Commodities
This story was produced with the assistance of Bloomberg Automation.
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