Asian stocks fell, and dollar selling eased as dovish encouragement from the Federal Reserve faded

Asian stocks fell, and dollar selling eased as dovish encouragement from the Federal Reserve faded

Bull statues are placed on screens showing the Hang Seng stock index and stock prices outside the Hong Kong Stock Exchange Square

Bull statues line screens showing the Hang Seng stock index and stock prices outside Exchange Square, in Hong Kong, China, on August 18, 2023. REUTERS/Tyrone Siu/File Photo Get License Rights

SINGAPORE (Reuters) – Asian stocks pulled back from 2-1/2-month highs on Wednesday and the dollar found support as investors eased some of their earlier enthusiasm about the prospect of an end to U.S. interest rate hikes.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.54%, retreating slightly after gaining more than 3% since last week and reaching its highest level since September on Tuesday. Japan’s Nikkei (.N225) rose 0.29%.

Overnight, the S&P 500 snapped a five-session winning streak and fell 0.2%. Chipmaker Nvidia (NVDA.O) reported revenues well above Wall Street expectations after the market closed, but shares fell 1.7% on the company’s pessimistic outlook for China sales.

Nasdaq futures fell by about 0.2% and S&P 500 futures were little changed during the Asian hours. Trading volumes are likely to decline during the rest of the week by the US Thanksgiving holiday on Thursday.

European stock markets are set for a quiet open, with Eurostoxx 50 futures up 0.05%, German DAX futures up 0.08%, and FTSE futures up 0.06%.

“It appears that the short-cover rally that began after the November (Fed meeting) has begun to ease and buying and selling have begun to alternate,” Naka Matsuzawa, chief macro strategist at Nomura Bank, said in a note to clients.

The Fed released the minutes of that meeting overnight although traders took the view that policymakers’ promise to “proceed cautiously” from here was not new information.

Ten-year Treasury yields were slightly lower at 4.3910% in Asian trade. They have fallen by about 50 basis points since the Fed held interest rates steady early in the month.

Interest rate futures markets see almost no chance of the Fed raising again and are pricing in about 90 basis points of rate cuts through 2024, with a 30% chance of them starting as soon as March.

“Since (the Fed) believes a soft landing is on the horizon, it would be foolish to risk it by raising interest rates too much,” said Philippe Marie, chief strategist at Rabobank.

“If we see stronger economic and inflation data before the December meeting, longer-term interest rates will likely rebound and replace rate hikes. So we do not expect further hikes.”

Yen prospects

In foreign exchange markets, the dollar, which has fallen since the release of a benign US inflation report last week, rose from multi-month lows among many of its peers.

The euro was broadly flat at $1.09065 per euro and rose to 148.77 yen on Wednesday. The Australian dollar settled at US$0.6541 after rebounding on Tuesday from resistance at its 200-day moving average of US$0.6588.

“We expect bond yield gaps to remain a tailwind for the yen and renminbi as US inflation continues to moderate and investors discount further interest rate cuts from the Fed,” said Jonathan Petersen, chief economist at Capital Economics.

“On this front, the yen’s outlook looks particularly promising… The risks are towards the Bank of Japan being an outsider again, this time raising interest rates while most other major central banks are cutting.”

More than 80% of economists in a Reuters poll said the Bank of Japan will end its negative interest rate policy next year, with greater conviction that the central bank is close to exiting its controversial monetary stimulus program.

The Chinese yuan, which rose 2 percent last week and led Asian currencies to rise against the dollar, settled at 7.1403.

China’s major state-owned banks have been buying the yuan to accelerate its recent recovery, two sources told Reuters on Tuesday.

On the data front, Singapore’s economy grew faster than initial estimates in the third quarter, thanks to a recovery in tourism.

Later on Wednesday, Reserve Bank of Australia Governor Michelle Bullock will deliver a speech and is scheduled to announce US jobless claims.

In commodity markets, Brent crude futures were at $82.32 per barrel, down 0.16% on the day. Singapore iron ore futures rose more than 10% during the month, to $131 per tonne.

Bitcoin fell 1% to $36,416 after Binance Chairman Changpeng Zhao stepped down and pleaded guilty to violating US anti-money laundering laws as part of a $4.3 billion settlement to resolve a years-long investigation into the cryptocurrency exchange.

Edited by Sam Holmes and Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

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