Asian mkts slip as Fed dithers on rate cuts

17 April

Asian stocks edged lower following hawkish comments by US Federal Reserve Chair Jerome Powell that helped fuel a third straight drop in the S&P 500 and saw two-year Treasury yields briefly climb to 5 per cent.

MSCI’S Asia Pacific Index dropped as much as 0.4 per cent, briefly erasing all of its gains for the year, amid worries about higher-forlonger interest rates and geopolitical tensions. Equity benchmarks fell in Japan and South Korea, while shares in Hong Kong rose. Chinese equities fluctuated at the open.

Treasury yields traded in a narrow range after climbing to fresh 2024 highs Tuesday when Federal Reserve chief Powell said it will likely take longer to have confidence that inflation is headed toward the central bank’s target. The remarks represented a shift in his message after a key measure of inflation exceeded forecasts for a third month.

After recent strong US data, the market is now pricing in 25-to-50 basis point reductions in the Fed rate this year starting July or September, said Kieran Calder, head of equity research for Asia at Union Bancaire Privée in Singapore. “The resulting stronger dollar is a headwind for most Asia markets and for Japan, pushing the yen towards the increasingly uncomfortable 155 per dollar level.”

The dollar edged lower versus most of its major peers Wednesday after seeing its best five-day gain since October 2022. The greenback’s resilience has hammered

Asian currencies in recent days, prompting authorities to ramp up defense against rapid depreciation.

The won jumped Wednesday following fresh warnings from South Korean officials.

After starting the year by pricing in as many as six rate cuts in 2024, or 1.5 percentage points of easing, traders are now doubtful there will even be a half point of reductions.