Most Asian stocks fell on Wednesday following a fall on Wall Street as a better-than-expected US inflation report dealt a big blow to hopes for an early interest rate cut.
A dimming outlook for the U.S. Federal Reserve to turn dovish also sent the dollar soaring against the yen, prompting Japanese officials to intervene in foreign exchange markets to support their currency. I have no choice but to warn you that this may happen.
Hopes for a rate cut have been buoyed by a series of positive indicators in recent weeks, particularly on the economy and employment, but several monetary policymakers have cautioned that they want to see more data before changing policy.
But stocks continued to rise in the meantime, and analysts said the Fed had signaled it was on track to cut interest rates this year, even if not as much as previously expected.
Last week’s slight downward revision to inflation data for the final months of 2023 added to the positive mood.
However, Tuesday’s data showed that the consumer price index and core prices eased less than expected, a severe blow that caused investors to reassess their interest rate outlook for this year.
All eyes are on the producer price statistics to be released this weekend.
All three major Wall Street indexes fell more than 1%, with the Dow and S&P 500 falling from near record highs.
U.S. Treasury yields soared, with the so-called “fear gauge” VIX index posting its fastest rise since October.
“The CPI report caught a lot of people off guard,” said Chris Zacarelli of the Alliance of Independent Advisors.
“Many investors expect the Fed to start cutting rates, and they spend a lot of time arguing that it will take too long for the Fed to start cutting rates, and that inflation will stick and fall in a straight line. I didn’t realize that I might not continue.”
Saxo’s Redmond Wong added: “The closely watched CPI report has factored in the possibility of a rate cut in March, with the probability currently seen as only 10%.”
“The probability of a rate cut in May has also fallen from around 70% to less than 40%, with the first rate cut likely only in June.”
Stephen Innes of SPI Asset Management called this a “bitter pill”.
“Assuming other key statistics released this month show a similar hotter trend as the CPI report. In that case, the Fed is unlikely to cut rates in May.”
Traders in Asia fled, with Tokyo, Sydney, Singapore, Seoul, Wellington, Mumbai and Bangkok plummeting.
But Hong Kong rebounded as it reopened after a long Lunar New Year holiday, boosted by expectations that China’s leader would announce further measures to support the country’s markets and stagnant economy.
The dollar maintained most of its gains against the greenback, but there were developments against the yen that were of particular interest to investors after the dollar rose about 1% to exceed 150 yen for the first time since November. .
Officials in Tokyo said they were closely monitoring developments and were prepared to intervene with currency support.
“Some of the recent rapid movements are in line with fundamentals, but some are clearly speculative. The latter is undesirable,” Masato Kanda, vice minister of finance and in charge of international affairs, said on Wednesday.
“Authorities are ready to respond 24 hours a day, 365 days a year.”
Finance Minister Shunichi Suzuki echoed these remarks.
The yen has fallen more than 5% since the start of the year as the Bank of Japan refrained from tightening monetary policy, even as the economy improved and inflation accelerated.
Bank of Japan Governor Kazuo Ueda has hinted at action soon but has refused to give a hard timetable, increasing pressure on the yen.
– Main figures around 0700 GMT –
Tokyo-Nikkei 225: 0.7% lower at 37,703.32 (closing price)
Hong Kong Hang Seng Index: 15,896.70, up 1.0%
Shanghai – Combined: Closed due to public holiday
Dollar/JPY: down to 150.49 yen from 150.80 yen on Tuesday
EUR/USD: rose from $1.0712 to $1.0717
GBP/USD: up from $1.2590 to $1.2605
EUR/GBP: down from 85.06 pence to 85.02 pence
West Texas Intermediate: down 0.1% to $77.77 per barrel
Brent crude oil: down 0.2% to $82.63 per barrel
New York – Dow: down 1.4% to 38,272.75 (close)
London – FTSE 100: down 0.8% to 7,512.28 (close)
–Bloomberg News contributed to this article —
Dan/Oh
