Asian shares slip, dollar rally on hold as Fed cues eyed
Asian stocks slid on Tuesday as the prospect of the U.S. central bank having to stay on its hawkish path weighed on sentiment, with investors looking to the minutes of the latest Federal Reserve meeting for further monetary policy clues.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) slipped 0.7% to 529.97, hovering around six-week lows of 529.30 touched last week.
The index is down nearly 3% this month, after jumping 8.6% in January, as a slew of robust U.S. economic data reinforced fears that interest rates may need to rise further and stay higher for longer.
The market is now pricing U.S. interest rates to peak at 5.30% in July and remain above 5% by the end of the year, moving away from expectations of deeper rate cuts this year.
European stock futures indicated stocks were set to decline, with Eurostoxx 50 futures down 0.14%, German DAX futures 0.07% lower and FTSE futures down 0.13%.
“The backdrop of inflation concerns in the U.S. is still keeping risks of a tighter-than-expected monetary policy, and yields remain a key focus as U.S. markets return later today,” strategists at Saxo Markets said.
ActivTrades market analyst Anderson Alves said traders have been talking about Chinese equities outperforming this year due to its reopening efforts.
“However, it is worth keeping an eye on the geopolitical front as the U.S. warned of consequences if China provides material support to Russia over the Ukraine war.”
The yield on 10-year Treasury notes was up 2.3 basis points to 3.852%., after touching a three-month high of 3.929% on Friday.
The yield on the 30-year Treasury bond was up 1.1 basis points to 3.899%, while that of the two-year U.S. Treasury paper, which typically moves in step with interest rate expectations, was up 3.5 basis points at 4.658%.
Investor focus is firmly on the release on Wednesday of the minutes of the Fed’s latest meeting earlier this month when it raised interest rates by 25 basis points.
In the currency market, the dollar was just shy of recent peaks as a three-week rally faded, with traders looking to European and U.S. manufacturing data later Tuesday and Friday’s core PCE price index to help guide their next steps. /FRX
DBS currency strategist Philip Wee said the market is bracing for another surprise in the PCE data after the strong U.S. nonfarm payrolls and CPI readings this month.
The dollar index , which measures the U.S. currency against six other rivals, was last at 103.99, just below a six-week high of 104.67 touched on Friday.
The euro was down 0.11% to $1.067, and is set to snap four straight months of gains and end February lower.
The yen weakened 0.11% to 134.38 per dollar, while sterling was last trading at $1.2026, down 0.10%.
U.S. crude fell 0.08% to $76.28 per barrel and Brent was at $83.01, down 1.26% on the day.