Major Asian indexes were on the back foot on Friday as hotter-than-expected inflation data out of the US raised concerns over how soon the Federal Reserve will start cutting rates.
Investors fled riskier assets to take refuge in the safe-haven dollar after US producer prices rose much more than expected and added to sticky consumer inflation data earlier.
US benchmark bond yields held near the 4.3% level they reached on Thursday for the first time this month, following their biggest jump in three months. The dollar also advanced to its highest since March 5 against a basket of major peers.
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The risk-off sentiment weighed on Asia’s technology stocks which were already tracking overnight falls in peers on Wall Street.
Japan’s Nikkei share average dipped, pulled down by heavyweight technology shares, which helped to lift the index above 40,000 points earlier this month.
Although the benchmark index snapped a string of losses in the previous session, the Nikkei was unable to keep up the momentum, closing 0.26% down at 38,707.64. It lost 2.5% this week, its largest weekly drop since early December.
Japan’s chip-testing equipment maker Advantest fell 1.4%, while chip-making equipment giant Tokyo Electron declined 4.9%, pulling the overall index down.
If tech shares continue to struggle, “it might take some time before the Nikkei reaches 40,000 again,” T&D Asset Management chief strategist Hiroshi Namioka said.
Japan was also in the global market spotlight amid speculation that the Bank of Japan could exit its ultra-dovish monetary policies at its two-day meeting ending next Tuesday.
Japan’s economy is no longer in deflation, and a strong trend of wage hikes is taking place, Finance Minister Shunichi Suzuki said on Friday. The government will mobilise all available policy steps to continue the positive momentum on wages, Suzuki added.
Investors have been pricing in the chance of a change in policy this month, particularly after news of big pay hikes from some of Japan’s biggest companies at this year’s annual wage negotiations.
Rate cut expectations lower
Elsewhere across the region, Mumbai, Bangkok, Seoul and Manila all ended in the red on Friday.
Losses in the region were led by Hong Kong’s Hang Seng and South Korea’s Kospi, both of which fell by more than 1%.
Meanwhile, mainland Chinese blue chips were little changed, despite the central bank’s decision to forgo any easing and keep the medium-term lending facility rate unchanged on Friday morning.
US data overnight added to a heated reading on consumer inflation earlier in the week to see futures markets cutting the odds of a June policy easing to 60%, from about 67% late on Wednesday, according to LSEG’s rate probability app.
For 2024, the market is now pricing in less than three rate cuts, down from three to four roughly two weeks ago.
Separately, traders will also be closely watching central bank meetings in Taiwan and Indonesia next week, for any clues on where regional interest rates might be headed.
“A brief ‘air pocket’ for stocks is likely until the March FOMC event risk is out. However, on a multi-month view, we remain modestly constructive on Asian stocks,” analysts from Nomura said in a research note.
Key figures
Tokyo – Nikkei 225 < DOWN 0.26% at 38,707.64 (close)
Hong Kong – Hang Seng Index < DOWN 1.44% at 16,720.89 (close)
Shanghai – Composite > UP 0.54% at 3,054.64 (close)
London – FTSE 100 > UP 0.15% at 7,754.59 (1315 GMT)
New York – Dow > UP 0.13% at 38,956.50 (Thursday close)
- Reuters, with additional editing by Vishakha Saxena
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