Asia Stocks, US Futures Slide on Hawkish Fed Tone: Markets Wrap

Asia Stocks, US Futures Slide on Hawkish Fed Tone: Markets Wrap
Tassia Sipahutar
·4 min read

(Bloomberg) -- Stocks in Asia dropped alongside US equity futures after comments by two Federal Reserve officials that they were considering 50 basis-point interest rate hikes to battle persistently high inflation.

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An Asian stock benchmark was set for a third straight weekly decline, the worst such run of losses since October. Contracts for both the S&P 500 and Nasdaq 100 were down after the underlying indexes sank more than 1% on Thursday.

Chinese investment bank China Renaissance Holdings Ltd fell as much as 50% in Hong Kong, the most ever, after saying that it was unable to contact Bao Fan, its chairman, chief executive officer and controlling shareholder.

A broad gauge of dollar strength climbed for a third day and currency advanced against all of its Group-of-10 counterparts. The Chinese yuan declined for a sixth straight day. Treasuries extended their losses slightly. The yields on two-year and 10-year Treasuries both set 2023 highs this week.

Federal Reserve Bank of Cleveland President Loretta Mester said she had seen a “compelling economic case” for rolling out another 50 basis-point hike, and St. Louis President James Bullard said he would not rule out supporting a half-percentage-point increase at the Fed’s March meeting, rather than a quarter point. Their warnings came after US producer prices rebounded in January by the most since June.

The market has been “a little bit too sanguine” so far this year when it comes to the prospect of an imminent Fed pivot, according to Helen Zhu, chief investment officer at Hong Kong-based Nan Fung Trinity.

“We don’t necessarily think there’s going to be a 50-basis-point rate hike at this next Fed meeting, but we do think that the expectations for a lot of cuts in the second half of this year are probably overdone.” Zhu said on Bloomberg Television.

Australian bond yields rose, following the moves in Treasuries, and as the chief of the nation’s central bank spoke in parliament. Governor Philip Lowe said further rate increases would be needed to tame rising prices as policy makers balanced two key risks: “One is the risk of not doing enough, which would result in high inflation persisting and then later proving very costly to get down,” he said. “The other is the risk that we move too fast, or too far.”

Further data in the US on Thursday added to the bearish mood, with new home construction retreating for a fifth month in January as elevated mortgage rates continue to keep a lid on housing demand. Weekly jobless claims fell to 194,000, below expectations of 200,000.

Investors have been upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing past 5.2% in July, according to trading in the US money markets. That compares with a perceived peak rate of 4.9% just two weeks ago, and the central bank’s current 4.5% to 4.75% target range.

In China, the central bank added the biggest amount of cash on record into the banking system to maintain liquidity. Earlier, the government was said to be selecting regulatory veterans known for their strict campaigns against financial wrongdoing as the new chiefs of the country’s banking and securities watchdogs.

Bitcoin retreated after three days of gains that were fueled by easing fears of a US regulatory crackdown.

In commodities, oil headed for a weekly drop as rising US inventories and the prospect of further tightening by the Federal Reserve eclipsed the lift from more signs that Chinese energy demand is improving. Gold fell.

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.3% as of 11:12 a.m. Tokyo time. The S&P 500 fell 1.4%

  • Nasdaq 100 futures fell 0.5%. The Nasdaq 100 fell 1.9%

  • Japan’s Topix index fell 0.5%

  • South Korea’s Kospi index fell 0.7%

  • Hong Kong’s Hang Seng Index fell 0.4%

  • China’s Shanghai Composite Index was little changed

  • Australia’s S&P/ASX 200 Index fell 0.7%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.3%

  • The euro fell 0.2% to $1.0653

  • The Japanese yen fell 0.5% to 134.63 per dollar

  • The offshore yuan fell 0.2% to 6.8839 per dollar

  • The Australian dollar fell 0.4% to $0.6854

Cryptocurrencies

  • Bitcoin fell 3.1% to $23,782.26

  • Ether fell 1.5% to $1,658.31

Bonds

  • The yield on 10-year Treasuries advanced three basis points to 3.89%

  • Australia’s 10-year yield advanced seven basis points to 3.83%

Commodities

  • West Texas Intermediate crude fell 0.7% to $77.96 a barrel

  • Spot gold fell 0.4% to $1,829.30 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Isabelle Lee, Emily Graffeo and Rob Verdonck.

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