Asian Stocks Swing Lower on Higher Rates Outlook:
- Shares fall in Australia, South Korea, China, seesaw in Japan
- Investors now expect US policy rate to peak at 5.4% this year
Asia equities fell Monday in seesawing trade after heavy selling on Wall Street late last week as investors ratcheted up forecasts for US interest rates following hot inflation data.
Declines for shares in Australia, South Korea and China weighed on a gauge of the region’s stocks. Hong Kong’s Hang Seng Index approached levels that would wipe out its 2023. Japanese stocks fluctuated.
US futures eased from their earlier highs to be up marginally after Friday’s slump of more than 1% for the S&P 500 and Nasdaq 100, which each suffered their worst week since December. European equity futures inched up.
Investor jitters over riskier assets follows an unexpected acceleration in January of the personal consumption expenditures price index, the Federal Reserve’s favored inflation gauge. The PCE data release Friday prompted a swift repricing of interest rate forecasts, with traders now pricing US rates to peak at 5.4% this year, compared to a expectations held just a month ago of rates to peak at less than 5%.
“The Fed is data dependent and the markets are very Fed dependent,” Mehvish Ayub, senior investment strategist for State Street Global Advisors, said in an interview with Bloomberg Television. “The Fed is still very much focused on inflation at the expense of growth. We could see a much higher rate path, looking at 5.5% or 6%.”
The yen strengthened against the dollar after a sharp fall on Friday. Bank of Japan Governor nominee Kazuo Ueda spoke again in the Japanese parliament without any large reverberation in markets. Inflation data released last week showed prices in the nation were rising at the fastest pace in four decades, placing pressure on the central bank to reassess its loose policy settings.
Yield on the 10-year Treasury was little changed in Asia on Monday after a jump of seven basis points Friday. Elevated yields continued to support the dollar, with a gauge of greenback flat after rising 0.7% Friday.
The Australian 10-year yield rose six points while the New Zealand 10-year yield climbed three basis points and was near the highest level since November.
Data due later in the day will provided extra context for the global economic outlook. Eurozone economic and consumer confidence is due, along with durable goods data from the the US.
Elsewhere in markets, oil steadied as concerns that the Fed will keep on raising interest rates to combat inflation balanced out a supply disruption in Europe and optimism over a demand recovery in China. Gold was also steady.
Iron ore sank following an order by Chinese authorities to cut production in its major steelmaking hub in a bid to curb pollution.
Key events this week:
- Eurozone economic confidence, consumer confidence, Monday
- US durable goods, Monday
- US wholesale inventories, Conf. Board consumer confidence, Tuesday
- China manufacturing PMI, non-manufacturing PMI, Caixin manufacturing PMI, Wednesday
- Eurozone S&P Global Eurozone Manufacturing PMI, Wednesday
- US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
- Eurozone CPI, unemployment, Thursday
- US initial jobless claims, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
Source: Bloomberg.com