MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.36% lower after hitting a two-year high on Thursday
Asian stocks dropped on Friday as traders pondered the near term U.S. monetary policy path after Federal Reserve officials suggested that interest rates may need to stay higher for longer even as inflation shows early signs of easing.
Data on Wednesday showed cooling U.S. consumer price inflation, prompting markets to swiftly price in at least two rate cuts this year but the excitement soon fizzled out as the latest report showed the labour market remains tight, while central bankers were still cautious about inflation.
Traders are pricing in around 47 bps of easing this year from the Fed, with a rate cut in November fully priced in.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.36% lower after hitting a two-year high on Thursday. The index was still set for a 2% rise this week for its fourth consecutive week of gains.
European bourses are set to open lower, with Eurostoxx 50 futures down 0.34% and FTSE futures 0.15% lower.
Following the incremental softening of the U.S. data, this is probably as far as the risk rally can go in the absence of tier-1 data over the coming week, according to Nicholas Chia, Asia macro strategist at Standard Chartered.
While the data this week offered the Fed good news on two fronts, policymakers have not openly shifted views yet about the timing of rate cuts but investors are convinced that it will start this year.
Monetary policy is “restrictive” and “is in a good place,” Federal Reserve Bank of New York President John Williams said. I do not see any indicators now telling me there is a reason to change the stance of monetary policy now.
Data on Thursday showed the number of Americans filing new claims for jobless benefits dropped last week, suggesting that labour market conditions remain fairly tight even as job growth is cooling.
Overnight, the Dow added 40,051.05 while the S&P 500 and Nasdaq also touched record highs before gradually dropping and closing marginally lower on the day.
Japan’s Nikkei dropped 0.34%. China stocks declined, with the blue chip gauge down 0.20%. Hong Kong’s Hang Seng Index was the exception for Asia, hitting its highest since August 2022. It was last up 0.29%.
