Asian shares tracked Wall Street lower on Thursday as sticky U.S. inflation forced markets to slash bets on how much the Federal Reserve might ease this year, sending the dollar flying to a 34-year high against the beleaguered yen.
Europe is set for a subdued open ahead of the European
Central Bank meeting, with EUROSTOXX 50 futures little changed. The ECB is all
but certain to hold rates steady but the focus is on whether officials would
back a rate cut in June.
In Asia, MSCI’s broadest index of Asia-Pacific shares
outside Japan slipped 0.3%, paring some earlier losses, while Japan’s Nikkei
dropped 0.5%.
Chinese shares eked out some gains even as data showed
consumer prices in the world’s second-largest economy rose by a muted 0.1% in
March from a year ago, versus a 0.7% rise in February.
The blue chips rose 0.3% while the Shanghai Composite Index
gained 0.6% thanks to resources stocks. Hong Kong’s Hang Seng index, however,
lost 0.4%.
U.S. stock futures were little changed after Wall Street
fell around 1% overnight. Treasuries also steadied after yields surged 20 basis
points to their highest levels since November.
Data overnight showed U.S. inflation in March once again
came in hotter than expected, decimating the chance of a rate cut in June. Core
CPI advanced 0.4%, above forecasts of a 0.3% rise.
Investors, who had been hanging onto the expectation of a
June cut, now see September as the most likely timing for the easing cycle to
start.
The total easing expected this year fell to just 42 basis
points, lower than the Fed’s own projection of 75 basis points. The chance of
Fed not cutting at all this year rose to 13%, from 2.1% a day earlier,
according to CME FedWatch.
“While clearly not the data policymakers would be hoping
for, for equities things haven’t really changed – the ‘Fed put’ remains well
and truly alive,” said Michael Brown, senior research strategist at
Pepperstone.
Brown added that should continue to give investors
encouragement to move out the risk curve, keeping volatility relatively low,
and with dips likely remaining shallow.
Fed minutes out overnight also showed that officials had
started to worry that inflation progress might have stalled before the March
inflation data, with some raising the possibility that the current policy rate
was not restrictive enough.
Bank of Canada kept its interest rate unchanged overnight,
and the bank governor said a cut in June was possible if a recent cooling trend
in inflation is sustained.
Asian bonds extended the heavy sell-off in Treasuries. The
10-year Australian government bond yield jumped 14.5 basis points to 4.259%,
highest since mid-February, while the 10-year Japanese bond yield rose 6 bps to
0.855%, highest since early November.
U.S. Treasuries, meanwhile, steadied on Thursday. The
benchmark ten-year yield was flat at 4.5416%, having surged 18 bps overnight,
and the two-year yield held at 4.9588%, after a rise of 22 bps the previous
session.
In currencies, the dollar was buoyant at a five-month high
against its major peers at 105.14, having surged 1.1% overnight, the biggest
daily jump in more than a year.
The greenback also hit a 34-year high of 153.24 yen
overnight, before easing 0.2% on Thursday to 152.90 yen as the risk of
government intervention looms large now that the Japanese currency has weakened
past the 152 level.
Japan’s top currency diplomat, Masato Kanda, warned on
Thursday that authorities would not rule out any steps to respond to disorderly
exchange-rate moves.
In commodities, metal prices were resilient in the face of a
strong dollar while oil held gains after advancing more than 1% following an
Israeli strike that killed three sons of a Hamas leader, fuelling worries that
ceasefire talks might stall.
Brent rose 0.15% to $90.62 a barrel, and U.S. crude was 0.1%
higher at $86.33 per barrel.
Gold prices gained 0.3% to $2,338.79 per ounce, charging
towards record highs, after losing 0.8% overnight.
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