(Bloomberg) — Equities in Asia were primed for a downbeat open Friday after declines on Wall Street as new data weakened the case for imminent Federal Reserve interest rate cuts.
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Shares in Australia and equity futures for Japan and Hong Kong all fell. The S&P 500 and Nasdaq 100 each slipped for a second session with both benchmarks registering 0.3% declines. US futures edged lower early Friday.
Treasuries also sold off Thursday with 10-year yields rising 10 basis points, their biggest one-day move in a month. The policy-sensitive two-year yield rose six basis points with Australian and New Zealand yields tracking those moves early Friday.
Higher yields supported the greenback as the Bloomberg dollar index rose 0.4%. Elsewhere, the yen got a brief boost Thursday from a report that the Bank of Japan may end its negative rate policy next week. The currency then quickly surrendered the advance as traders lacked conviction around the central bank’s decision.
Treasury action was driven by producer price index data that rose more than expected in February, echoing the higher than anticipated consumer price data earlier in the week. Together, the figures show the Fed’s work in quelling inflation is not complete — even as retail sales figures released Thursday came in weaker than expected.
The re-acceleration of inflation against the backdrop of still buoyant risk assets that includes record highs for stocks and Bitcoin are “very symptomatic of a bubble mentality,” warned Michael Hartnett, chief investment strategist for Bank of America Corp.
Bitcoin edged higher Friday to trade at around $71,500. Oil, meanwhile, steadied after a two-day rally with West Texas Intermediate prices edging slightly lower early Friday at around $81 a barrel.
In Asia, data set for release includes China’s MLF rate setting and February home prices, Indonesia trade figures, and Japan’s Tertiary Industry Index.
In China, state funds’ purchasing of exchange traded funds has showed signs of cooling after a $50 billion buying spree to support its equity market. Elsewhere in China, the country’s banking regulator has asked Hong Kong financial institutions to detail their holdings of local government financing vehicles’ debt.
TikTok was again in focus. Senators from both sides of the aisle swatted down the idea of fast-tracking legislation that would speed up a potential sale of the company within six months. Former US Treasury Secretary Steven Mnuchin said he was targeting the purchase of TikTok from its Chinese parent company.
Fed’s Dot Plot
The Fed is expected to keep rates unchanged at the March 19-20 meeting for the fifth straight gathering. Coming on the heels of reports warning of persistently high inflation, the focus will be on the Fed’s new “dot plot.” The median forecast of policymakers in December showed three quarter-point rate reductions for 2024.
“Equity and bond bulls are staring at their calendars and drawing a ‘big red circle’ around the 20th of this month,” said Jose Torres at Interactive Brokers. “Folks are concerned Powell may have to pull a dangerous U-turn during his ride on the monetary-policy highway. His dovish messaging since December has driven an intense loosening in financial conditions.”
With February’s CPI and PPI data in hand, Bloomberg Economics estimates that the core PCE deflator — the Fed’s preferred inflation indicator — and core services excluding housing, known as “supercore,” will both moderate.
While the February PPI was stronger than expected, the details that affect PCE inflation were on the “softer side,” according to Bank of America Corp. economists including Michael Gapen.
“We continue to expect the Fed will start its cutting cycle in June,” they said. “However, it will need to see more improvement in the upcoming inflation data to have enough confidence to begin to ease.”
Key events this week:
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China property prices, Friday
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Japan’s largest union federation announces results of annual wage negotiations, just ahead of Bank of Japan policy meeting, Friday
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Bank of England issues inflation survey, Friday
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US industrial production, University of Michigan consumer sentiment, Empire Manufacturing, Friday
Some of the main moves in markets
Stocks
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S&P 500 futures fell 0.1% as of 8:18 a.m. Tokyo time
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Hang Seng futures fell 1%
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Australia’s S&P/ASX 200 fell 1.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0885
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The Japanese yen was little changed at 148.27 per dollar
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The offshore yuan was little changed at 7.2024 per dollar
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The Australian dollar was little changed at $0.6579
Cryptocurrencies
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Bitcoin rose 1.3% to $71,575.95
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Ether rose 1.1% to $3,884.6
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
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