The dollar and Treasury rates increased on Wednesday as traders reduced their expectations for the rate reduction this year, both in terms of quantity and pace, by the Federal Reserve. Asian equities followed Wall Street’s bearish lead.
With the consumer price index (CPI) climbing 3.1% annually, above estimates for a 2.9% increase, on Tuesday, U.S. inflation surprised to the upside. This led to the most recent shift in rate expectations.
Compared to 110 basis points before the data release and 160 basis points at the end of last year, futures currently indicate that the Fed will soften by around 87 basis points this year.
This maintained pressure on global markets, which had seen a significant rally at the close of the previous year due to bold wagers that major central banks would lower interest rates internationally in 2024.
In early Asia trade, MSCI’s broadest index of Asia-Pacific equities outside of Japan (.MIAPJ0000PUS) lost 0.8%, indicating that it was about to record its fifth consecutive day of losses. Futures for the S&P 500 and the Nasdaq were trading almost unchanged. Futures on the EURO STOXX 50 fell 0.3%.
The expectation of a rate decrease by the Federal Reserve anytime soon is tempered by better statistics, according to Capital.com senior market analyst Daniela Hathorn.
“We’ll likely have to wait for the second half of the year for the Fed to start cutting, but the issue isn’t so much whether the bank will cut rates this year, as that is an almost certainty at this point, but how many rate cuts there will be.”
Even the very successful Nikkei (.N225) in Japan, which opened a new tab, was not immune to the assault, falling 0.7% following a 2.9% rise in the previous session and a peak at 38,000.
A declining yen, which on Tuesday fell below the crucial 150 per dollar mark for the first time this year, contributed to the most recent increase in the Nikkei. At last, the yen was worth 150.63 to the dollar.
Referring to Japanese government intervention measures to support the currency, “If they do try intervention, I think it’ll be near… the (dollar/yen) high from October 2022 and the high we saw in mid-November,” said Tony Sycamore, an IG market analyst.
On Wednesday, leading currency officials in Japan issued a warning against speculative and rapid overnight yen swings.
In other news, Hong Kong equities saw negative returns on their first trading day after the Lunar New Year vacation. 0.8% was the drop in the Hang Seng Index (.HSI), which opens a new tab. Mainland For the next week, China’s financial markets are closed.
The benchmark 10-year Treasury yield reached a two-month high of 4.3320% on Wednesday due to the possibility that U.S. rates may remain high for longer than first anticipated.
The yield on the two-year Treasury note, which is a good indicator of short-term interest rate expectations, closed the previous session at 4.6324% after scaling a two-month high of 4.6730%.
As a result, the dollar has strengthened and is now close to a three-month high of 104.81 against a basket of currencies. On Tuesday, the dollar index reached its highest point since November.
“The attendant, broad-based U.S. dollar surge admittedly reflects (the) corresponding surge in U.S. Treasury yields,” stated Vishnu Varathan, chief economist for Asia outside Japan at Mizuho Bank.
At $1.2597, sterling remained stable. The British pay increased at the slowest rate in over a year at the end of 2023, according to statistics that gave the pound a temporary boost during the previous session. However, the slowdown was presumably not substantial enough to prompt the Bank of England to lower interest rates more quickly.
Later on Wednesday, UK inflation data is anticipated. In terms of cryptocurrency, bitcoin recently traded at $49,496 after retreating from the $50,000 mark. While geopolitical concerns persisted in the Middle East and Eastern Europe, FTX/Oil prices gradually declined, undoing some of Tuesday’s gains.
US crude dropped 22 cents to a barrel of $77.65. Futures for Brent dropped 33 cents to $82.44. Gold’s price at $1,992.37 an ounce barely moved.
- Published By Team Genuine Reporter