(Bloomberg) — Asian stocks tracked Wall Street lower following activity data that signaled the Federal Reserve may keep rates on hold for most of this year.
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Stocks fell in Australia and Japan, while equity futures in Hong Kong pointed to losses of more than 1% at the open Friday. The Golden Dragon Index of US-listed Chinese shares fell 3.7% Thursday, the most in six weeks. US contracts were steady after the S&P 500 fell the most this month and the Dow Jones Industrial Average lost 1.5%.
Swaps now fully price the Fed’s first full quarter-point rate cut in December, versus November a day earlier. Growth in activity at service providers was the fastest in a year and manufacturing output expanded at a quicker pace. Such resilience is making it difficult for inflation to cool, helping explain why the Fed is intent on keeping rates higher for longer.
“For central banks that have a responsibility for optimizing economic welfare, the growth climate is welcome,” Australia & New Zealand Banking Group economists including Henry Russell wrote in a note to clients. “Therefore, the primary uncertainty for rate setters continues to be whether inflation will continue to progress toward target despite economies operating strongly.”
Emerging Asian currencies, including South Korea’s won and Malaysia’s ringgit, fell on the back of a stronger dollar.
In Japan, inflation eased for a second month as investors continued to weigh whether the Bank of Japan has capacity to raise interest rates further this year. The yield on 10-year Japanese government bonds topped 1% this week as markets almost fully price a 10 basis point hike at the July meeting, according to data compiled by Bloomberg. The yen is trading around 157 per dollar.
The cooling in prices, however, won’t “deter financial markets from speculating on further Bank of Japan policy tightening,” said Kristina Clifton, a senior economist at Commonwealth Bank of Australia in Sydney. “At this stage, we expect the BOJ to wait until around October before increasing interest rates again,” which could place further pressure on the yen, she added.
Higher For Longer
Atlanta Fed President Raphael Bostic on Thursday reiterated the chorus from officials this week that the central bank needs to be patient on its next move as there is still considerable upward pressure on prices. Minutes of the Fed’s May meeting released this week showed policy makers coalesced around a desire to hold rates higher for longer and “many” questioned whether policy was restrictive enough to bring inflation down to their target.
“The minutes are a reminder that while the Fed does not see another rate hike as likely — and certainly does not see it as a base-case — it will not rule out hikes if inflation does not behave,” said Chris Low at FHN Financial.
Treasuries steadied after falling on bets on higher-for-longer US interest rate. An index tracking greenback strength was little changed in Friday Asian trading, after strengthening for a fourth day following higher Treasury yields.
Meantime, following another round of blowout earnings from artificial-intelligence darling Nvidia Corp, the chipmaker jumped over 9% on a solid outlook and topped the historic $1,000 mark. Together with the economy’s steady advance, the S&P 500 likely has further room to rise, according to JPMorgan Chase & Co.’s trading desk.
“With the AI theme still delivering and the macro hypothesis intact, we are likely to continue to make new all-time highs,” the team including Head of US Market Intelligence Andrew Tyler wrote in a note to clients.
In commodities, oil steadied on Friday after slipping in its previous session as traders weighed signs of a weakening physical market ahead of the start of the US summer driving season. Elsewhere, gold held Thursday’s loss following the US economic data.
Key events this week:
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Canada retail sales, Friday
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Germany GDP, Friday
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US durable goods, consumer sentiment, Friday
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Fed’s Christopher Waller speaks, Friday
Some of the main market moves:
Stocks
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S&P 500 futures were little changed as of 9:01 a.m. Tokyo time
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Hang Seng futures fell 1.3%
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Japan’s Topix fell 1.3%
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Australia’s S&P/ASX 200 fell 0.2%
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Euro Stoxx 50 futures rose 0.2%
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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 $1.0811
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The Japanese yen was little changed at 156.96 per dollar
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The offshore yuan was little changed at 7.2581 per dollar
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The Australian dollar was little changed at $0.6600
Cryptocurrencies
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Bitcoin rose 0.2% to $67,878.48
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Ether rose 0.5% to $3,775.86
Bonds
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The yield on 10-year Treasuries was little changed at 4.47%
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Japan’s 10-year yield was little changed at 0.995%
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Australia’s 10-year yield advanced six basis points to 4.31%
Commodities
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West Texas Intermediate crude was little changed
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Spot gold rose 0.1% to $2,332.21 an ounce
This story was produced with the assistance of Bloomberg Automation.
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