(Bloomberg) — Asian stocks fell while Treasuries steadied after Wall Street slumped the most since September amid disappointing earnings reports and the Federal Reserve pushing back on interest rate cut expectations.
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Speaking after the January Fed decision, Chair Jerome Powell said he doesn’t think it’s likely the central bank will ease policy in March. In a sign that officials are not in a hurry to lower rates, the central bank also said it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”
Shares in Australia and Japan slipped while futures for mainland China also point to declines after the S&P 500 fell 1.6%. Contracts for US equities edged higher after big tech, such as Microsoft Corp. and Alphabet Inc. led losses on Wall Street Wednesday.
Treasuries held most of their gains in Asian trading. The yield on the 10-year note fell 12 basis points in the previous session after fresh concerns about regional lenders added to economic worries following New York Community Bancorp’s surprise loss. A gauge on dollar strength edged lower, while the yen led gains among its Group-of-10 peers.
“Interest rates took the elevator going up — but are going to take the stairs coming down,” said Greg McBride, chief financial analyst at Bankrate Inc. “The Federal Reserve is getting closer to the first interest rate cut, but we’re not there yet.”
The selloff in US equities will likely trigger similar moves in Asian equity markets this morning, but AMP Services Limited’s Shane Oliver, still sees a longer-term positive trend.
“The bigger picture message is that the Fed is become progressively more dovish with rate cuts remaining on track for this year, which is positive for share markets regionally,” he said. “Asia-Pacific markets will follow Wall Street down today, but markets had run ahead of themselves in expecting a cut as soon as March.”
Treasuries were also supported by data Wednesday that showed a broad gauge of US labor costs cooled by more than forecast in a fresh sign of easing inflation pressures that give Fed officials room to cut interest rates this year. A separate report from the ADP Research Institute showed companies added a smaller-than-expected 107,000 jobs in January, and worker pay growth slowed.
The market has been too quick to dismiss the threat posed by inflation after a “miraculous” decline toward central bank targets, said Greg Peters at PGIM Fixed Income. He’s worried that the hardest part of the fight against inflation is still ahead, implying plenty more market volatility and a potential wake-up call for bondholders betting on deep interest-rate cuts this year.
January Barometer
Despite Wednesday’s losses, the S&P 500, and a gauge of global stocks, capped its third straight monthly advance.
As goes January, so goes the year. That’s the theory of a phenomenon known as the “January Barometer” — Wall Street folklore positing that if stocks rise in January, they’ll be poised to finish the year higher, and vice versa. Since 1938, the January Barometer has been right about 74% of the time, with the next 11 months higher 67% of the time, according to the Stock Trader’s Almanac.
In commodities, oil was mostly unchanged in Asia trading but capped its first monthly gain since September amid tensions in the Middle East. Gold advanced for a fourth consecutive day.
Key events this week:
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China Caixin manufacturing PMI, Thursday
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Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Thursday
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US productivity, construction spending, ISM Manufacturing, initial jobless claims, Thursday
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Apple, Amazon, Meta, Deutsche Bank, BNP Paribas earnings, Thursday
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Bank of England interest rate decision, Thursday
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US employment report, University of Michigan consumer sentiment, factory orders, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures rose 0.2% as of 9:34 a.m. Tokyo time
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Hang Seng futures rose 0.7%
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Nikkei 225 futures (OSE) fell 1%
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Japan’s Topix fell 0.7%
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Australia’s S&P/ASX 200 fell 1.1%
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Euro Stoxx 50 futures fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro was little changed at $1.0810
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The Japanese yen was little changed at 146.80 per dollar
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The offshore yuan was little changed at 7.1856 per dollar
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The Australian dollar was little changed at $0.6574
Cryptocurrencies
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Bitcoin was little changed at $42,422.07
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Ether rose 0.1% to $2,280.68
Bonds
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The yield on 10-year Treasuries advanced two basis points to 3.93%
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Japan’s 10-year yield was little changed at 0.735%
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Australia’s 10-year yield declined two basis points to 3.99%
Commodities
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West Texas Intermediate crude was little changed
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Spot gold rose 0.1% to $2,041.74 an ounce
This story was produced with the assistance of Bloomberg Automation.
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