Asian markets track Wall Street’s decline as US Fed decision looms

HONG KONG, China—Asian stocks sank in holiday-thinned trade Wednesday, tracking a sharp sell-off on Wall Street after fresh US data dealt another blow to hopes the Federal Reserve will cut interest rates this year.

The reading on labor costs followed a string of recent reports out of Washington suggesting the central bank’s battle against inflation has some way to go, even with borrowing costs at two-decade highs.

It also adds to the angst among investors leading up to the Fed’s latest policy decision later in the day, which many were already expecting to see officials turn more hawkish.

That will be followed by closely watched non-farm payrolls (NFP) figures that should provide a fresh snapshot of the labor market, which has so far remained resilient to the high rates environment.

Wall Street’s three main indexes tanked Tuesday after news that the employment cost index, the Fed’s preferred gauge of wage inflation, came in hotter than forecast in the first quarter.

That provided another hammer blow to hopes the Fed will cut rates this year, with bets already reduced to just one by January -- compared with an expected six at the start of 2024.

Some are even warning of a possible hike.

Investors ran for the sidelines on the report, which came as another batch of data showed US consumer confidence had tumbled to its lowest level since July 2022.

The wage “data delivers a straightforward message: the US economy isn’t showing signs of rapidly slowing inflation”, said SPI Asset Management’s Stephen Innes.