Passers-by walk past an electric board displaying Japan’s Nikkei stock average outside a brokerage firm in Tokyo, Japan, April 18, 2023. Portal/Issei Kato ACKNOWLEDGE RIGHTS
HONG KONG, Sept 21 (Portal) – Asian stocks followed Wall Street’s lead on Thursday, falling across the board as investors interpreted the U.S. Federal Reserve’s latest monetary policy statements as a signal of higher interest rates in the longer term.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.4% by early afternoon Hong Kong time. Japan’s Nikkei (.N225) slipped 0.6%. China’s blue chip (.CSI300) fell 0.6%, while Hong Kong’s benchmark lost 1.3%.
The two-year U.S. Treasury yield rose to a 17-year high of 5.1970% on Thursday morning and settled around the 5.18% mark in the early afternoon.
The 10-year Japanese government bond yield rose to its highest level in a decade, tracking U.S. 10-year Treasury yields which rose to 4.4310%, a 16-year high.
“Given the Fed’s hawkish stance, we expect bond yields to continue rising in the near term,” said Tai Hui, chief APAC market strategist at JP Morgan Asset Management.
“However, high interest rates will ultimately cool the economy and lead to falling yields,” he said, adding that they remain positive not only for long-dated Treasuries or investment-grade corporate bonds, but also for assets such as growth and technology stocks .
Ben Luk, senior multi-asset strategist at State Street Global Markets, said the overall tone of the Fed’s latest meeting was not overly hawkish, but there were two surprises.
The forecasts for 2024 were slightly higher than widely expected, and the Fed’s statements implied the assumption that macroeconomic growth would continue even if interest rates lasted longer, Luk said.
The Federal Reserve kept interest rates on hold on Wednesday and forecast a hike by the end of the year. She said monetary policy would likely be significantly tighter by 2024 than previously thought.
The median forecast for the federal funds rate is 5.1% by year-end, up from 4.6% in June.
Even if inflation slows for the rest of 2023 and the coming years, the Fed initially expects only modest cuts to its key interest rate.
Upward revisions to U.S. policymakers’ average interest rate forecasts for the next few years triggered a recovery in the U.S. dollar, pushed U.S. Treasury yields to multi-year highs, flattened the yield curve and caused stock prices to collapse.
The dollar index, which measures the currency against a basket of peers, rose to 105.59 on Thursday, its highest since March 9, pushing the yen close to its weakest level since November.
Meanwhile, sterling fell to a fresh multi-month low after a negative inflation report was released on Wednesday, while questions grew over whether the Bank of England might follow its US counterpart in keeping interest rates on hold on Thursday.
Major stock futures fluctuated in early afternoon Asia time. U.S. stock futures, the S&P 500 E-minis, fell 0.3%. Regional Euro Stoxx 50 futures, German DAX futures and FTSE futures all fell about 1%.
Investors now also await monetary policy decisions from Indonesia, the Philippines and Taiwan on Thursday, while a balanced call from the Bank of England will also provide guidance to Asian markets.
Oil prices fell in Asian trading on Thursday after posting their sharpest fall in a month in the previous session. U.S. crude oil fell 0.72% to $89.01 a barrel. Brent crude fell to $92.87 a barrel.
Gold prices were slightly lower, with the spot gold price at $1,927.96 per ounce.
Reporting by Xie Yu in Hong Kong; Edited by Lincoln Feast.
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