Asian stocks fall on nagging Fed rate hike worries

The slight easing of inflation readings this week have driven global stocks higher, and capped a rising dollar

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By Reuters

Published: Fri 12 Aug 2022, 9:15 AM

Last updated: Fri 12 Aug 2022, 10:24 AM

On Friday, Asian stocks tracked Wall Street losses, and the yen fell, as investors were filled with uncertainty over how aggressively the Federal Reserve would raise interest rates to tackle inflation, despite softer numbers earlier this week.

MSCI's broadest index of Asia-Pacific shares outside Japan fell by 0.10 per cent, and Australia's AXJO was down by 0.62 per cent.

Japan's Nikkei was the major outlier, surging 2.37 per cent to its highest level since January, as markets reopened following a national holiday.

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The yen fell 1.24 per cent and was trading at 133.39 to the dollar.

The slight easing of inflation readings this week had driven global stocks higher and capped a rising dollar, until a string of Fed speakers put paid to expectations of the central bank going slow on further policy tightening. On Thursday, China's blue-chip stock index posted its biggest jump in more than 3 months.

"The Fed is going to do what they said, which is whatever it takes to address inflation, so you are seeing some repositioning around that out of US equities,'' said Carlos Casanova, a senior economist at UBP.

The S&P 500 closed down 0.07 per cent, and the Nasdaq Composite lost 0.58 per cent overnight, though the Dow Jones Industrial Average rose by 0.08 per cent.

On Thursday, San Francisco Federal Reserve Bank President Mary Daly said that while a 50 basis point rate hike next month "makes sense" given economic data, she'd be open to a bigger hike if necessary. The rate is currently in the 2.25 - 2.5 per cent range.

Chicago Fed President Charles Evans said he believed that the Fed would likely need to lift its policy rate to about 3.25 - 3.5 per cent this year, and to 3.75 - 4 per cent by the end of next year, in line with what Fed Chair Jerome Powell signalled, after the Fed's latest meeting in July.

Minneapolis Fed President Neel Kashkari, the most hawkish of his 18 colleagues, said he hadn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9 per cent by the year-end, and to 4.4 per cent by the end of 2023.

Chewing over those comments, investors were still unsure how set the Fed is.

Odds of a 75 bps hike in September were as high as 68 per cent earlier in the week, but are now around 34 per cent, where they were a week ago.

US 10-year Treasury yields held firm after rising overnight, and were last trading at 2.8766 per cent.

In commodities, Brent crude oil futures fell by 0.63 per cent, to $98.97 a barrel. US West Texas Intermediate crude was also down, dropping 0.69 per cent, to $93.69.

Brent is still on track to gain more than 4 per cent this week, while WTI looks likely to mark a weekly climb of 5 per cent.

Bitcoin, the leading cryptocurrency, shaved some overnight gains and lost 1.22 per cent to trade at $23,916.

Spot gold was down 0.14 per cent, at $1,787 an ounce.

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Reuters

Published: Fri 12 Aug 2022, 9:15 AM

Last updated: Fri 12 Aug 2022, 10:24 AM

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