HONG KONG, Feb 15 — Asian stocks slipped while the US dollar was steadfast on Wednesday, following US inflation data and remarks from central bank officials that have investors worrying interest rates are going to be higher for longer.
Headline US CPI came in at 6.4 per cent year-on-year for January, a bit higher than the 6.2 per cent economists had expected, setting off selling in the bond market and Fed funds futures as hopes that rates could be cut later this year grow dimmer and dimmer.
Fed funds futures now imply a peak above 5.2 per cent by mid-year and rates above 5 per cent at year’s end.
Two-year Treasury yields, which rise when prices fall, climbed nearly nine basis points in New York trade to 4.611 per cent, widening their premium over 10-year rates – an unusual phenomenon that reliably signals recession.
US stocks finished flat on Tuesday but S&P 500 futures dropped 0.4 per cent in Asia.
By mid-morning Hong Kong time, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.3 per cent, led by drops bigger than 1 per cent in Australia and Hong Kong, and analysts were bracing for further falls.
“If I combine this earlier (US) Fed rhetoric trying to keep the rates higher for longer and the recent CPI number…then it seems likely that there should be some degree of moderation in the equity markets, both developed markets and Asian markets,” said Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas.
He said the dollar might also regain some strength over emerging market currencies, helped by the prospect of US rates staying elevated.
The dollar touched a six-week high of 133.30 Japanese yen overnight and hovered at 132.80 yen on Wednesday. It had a bumpier ride against other currencies following the CPI data, but seems to be pausing following a January slide.
The dollar index was steady at 103.32. The Australian dollar eased a bit to US$0.6959 even as central bank Governor Philip Lowe said rates would need to rise further to contain inflation in remarks to a parliamentary committee.
Oil prices fell as traders worried about mounting supplies and weakening demand. U.S. crude dipped 0.46 per cent to US$78.70 a barrel. Brent crude settled down 1.19 per cent to US$85.58 per barrel.
Gold was slightly higher. Spot gold traded at US$1,854.92 per ounce. Bitcoin clung to an overnight bounce at US$22,114.
— Reuters
