Global Markets: Asian stocks fall slightly; Dollar drives Treasury yields higher – market news

Asian stocks took a negative lead from Wall Street on Wednesday, while the dollar and Treasury yields jumped as traders scaled back expectations about the pace and size of the Federal Reserve's interest rate cuts this year. The latest shift in interest rate expectations came after a positive surprise in U.S. inflation on Tuesday, which showed the consumer price index (CPI) rose 3.1% on an annual basis, above forecasts for a 2.9% rise.

Futures now suggest the Fed has priced in about 87 basis points of easing this year, compared with 110 basis points before the data was released and 160 basis points at the end of last year. That kept pressure on global stocks, which had rallied late last year on aggressive bets on interest rate cuts by major central banks worldwide in 2024.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8% in early Asian trading, heading for a fifth straight day of losses. S&P 500 futures and Nasdaq futures traded almost flat. EUROSTOXX 50 futures lost 0.3%. “The better data weakens hopes of an imminent rate cut by the Federal Reserve,” said Daniela Hathorn, senior market analyst at Capital.com.

“We will probably have to wait for the second half of the year for the Fed to start cutting, but the question is not so much whether the bank will cut rates this year, as it is almost certain at this point, but how many rate cuts there will be? “Even Japan's standout Nikkei was not spared from the defeat, falling 0.7% after gaining 2.9% in the previous session to breach 38,000.

The Nikkei's recent rise was helped in part by a weakening yen, which weakened above the key 150 per dollar level on Tuesday for the first time this year. The yen was last at 150.63 per dollar. “If they try an intervention, I think it will be near the October 2022 (dollar/yen) high and the high we saw in mid-November,” said Tony Sycamore, market analyst at IG , citing intervention efforts by Japanese authorities to support the currency.

Japan's top monetary officials warned on Wednesday about what they said were rapid and speculative moves in the yen overnight. Elsewhere, shares in Hong Kong were also in the red on their first day of trading after the Lunar New Year holiday. The Hang Seng Index fell 0.8%. Financial markets in mainland China will remain closed this week.

HIGHER LONGER

The prospect that U.S. interest rates will remain high for longer than previously expected pushed the benchmark 10-year Treasury yield to a more than two-month high of 4.3320% on Wednesday. The two-year Treasury yield typically reflects short-term interest rates. Rate expectations were last at 4.6324%, after also hitting a two-month high of 4.6730% in the previous session. This has helped the greenback move closer to a three-month high against a basket of currencies at 104.81. The dollar index hit its highest level since November on Tuesday.

“The accompanying broad-based rise in the US dollar admittedly reflects the corresponding rise in US Treasury yields,” said Vishnu Varathan, chief Asia ex-Japan economist at Mizuho Bank. The pound stabilized at $1.2597.

The pound briefly rose in the previous session as data showed British wages rose at the weakest pace in more than a year at the end of 2023, but the slowdown was probably not significant enough to prompt the Bank of England to take quicker action to move on a rate cut. UK inflation data is due later on Wednesday.

In cryptocurrencies, Bitcoin fell back from the $50,000 mark and last bought $49,496. Oil prices, meanwhile, fell slightly, erasing some of Tuesday's gains, as geopolitical tensions continued in the Middle East and Eastern Europe. U.S. crude fell 22 cents to $77.65 a barrel. Brent futures fell 33 cents to $82.44. Gold was little changed at $1,992.37 an ounce.