Asian stocks tracked Wall Street losses and the yen fell on Friday as investors remained 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 0.10%, and Australia’s AXJO was down 0.62%.
Japan’s Nikkei was the major outlier, surging 2.37% to its highest level since January as markets reopened following a national holiday. The yen fell 1.24% 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. China’s blue-chip stock index posted its biggest jump in more than 3 months on Thursday.
“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, senior economist at UBP.
The S&P 500 closed down 0.07% and the Nasdaq Composite lost 0.58% overnight, though the Dow Jones Industrial Average rose 0.08%.
San Francisco Federal Reserve Bank president Mary Daly said on Thursday 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% range.
Chicago Fed President Charles Evans said he believes the Fed will likely need to lift its policy rate to 3.25%-3.5% this year and to 3.75%-4% by the end of next year, in line with what Fed Chair Jerome Powell signaled after the Fed’s latest meeting in July.
And, Minneapolis Fed President Neel Kashkari, the most hawkish of his 18 colleagues said he hasn’t “seen anything that changes” the need to raise the Fed’s policy rate to 3.9% by year-end and to 4.4% 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% earlier in the week, but are now around 34%, where they were a week ago.
US 10-year Treasury yields US10YT=RR held firm after rising overnight and were last trading at 2.8766%.
In commodities, Brent crude oil futures fell 0.63% to $ 98.97 a barrel. US West Texas Intermediate crude was also down, dropping 0.69% to $ 93.69.
Brent is still on track to gain more than 4% this week, while WTI looks likely to mark a weekly climb of 5%.
Bitcoin, the leading cryptocurrency, shaved some overnight gains and lost 1.22% to trade at $ 23,916.
Spot gold was down 0.14% at $ 17,687 an ounce.
