Bull statues are placed in front of screens showing the Hang Seng stock index and stock prices outside Exchange Square in Hong Kong, China, August 18, 2023. Portal/Tyrone Siu/File Photo Acquire LICENSE RIGHTS
SINGAPORE, Oct 13 (Portal) – Asian shares fell on Friday, on track for their biggest daily percentage decline in a week, after stronger-than-expected U.S. consumer price numbers strengthened arguments that the Federal Reserve interest rates should remain higher for longer.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.2% after hitting a three-week high on Thursday.
However, it is still expected to post a decent 1.4% gain for the week, ending a three-week losing streak.
The bad mood in Europe should continue: Eurostoxx 50 futures lost 0.19%, German DAX futures lost 0.14% and FTSE futures lost 0.05%.
The focus is on the inflation reports from Sweden, Spain and France due later in the day.
A rise in U.S. consumer prices in September curbed a surprise rise in rental costs and traders now see a greater chance the Fed will make another hike this year.
Futures contracts tracking the Fed’s interest rate have a probability of a rate hike in December of about 40%, compared to a probability of about 28% before the CPI report.
Ryan Brandham, head of global capital markets North America at Validus Risk Management, said the data underscores the challenges the Fed will face in bringing inflation down to its 2% target.
Separate data also showed that the number of Americans receiving benefits after an initial week of aid, a proxy for hiring, rose by 30,000 to a still-low 1.702 million in the week ended Sept. 30.
“The weakening labor market is key to the Fed achieving its goal of bringing inflation back to target, and hawks calling for at least another hike are supported based on these numbers,” Brandham said.
The inflation report and weak demand for a 30-year U.S. bond auction led Treasury yields to rise on Thursday.
In Asian trading hours on Friday, the 10-year Treasury yield fell 4.1 basis points to 4.670%, but remained far from the two-week low of 4.5300% it hit a day earlier.
Recent gains in stock markets and a decline in Treasury yields were driven by comments from Federal Reserve officials suggesting that U.S. interest rates – which tend to drive up global borrowing costs – may have finally peaked .
“Much of the ‘good’ work done last week in the form of a bullish flattening of the US yield curve has been undone by the latest US CPI report,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank.
Data on Friday showed China’s consumer prices stagnated in September while factory prices contracted more slowly, suggesting deflationary pressures are continuing.
However, China’s exports and imports contracted more slowly for a second time in September, reinforcing signs of gradual stabilization in the world’s second-largest economy.
China’s blue-chip stock index CSI300 (.CSI300) fell 1.1%, while the Hang Seng Index (.HSI) fell 2%. Japan’s Nikkei (.N225) fell 0.53%, while Australia’s S&P/ASX 200 Index (.AXJO) lost 0.47%.
The sharp escalation of tensions in the Middle East this week has also ensured that market sentiment remains cautious.
Next, investors will focus on remarks from Federal Reserve Chairman Jerome Powell, who is scheduled to speak on October 19, just before the Federal Reserve’s lock-in period begins before its next interest rate decision. The Fed’s next meeting will take place from October 31st to November 31st. 1.
There was also a risk-off mood in the foreign exchange market and the dollar maintained its overnight gains. Against a basket of currencies, the dollar fell 0.103% to 106.40, after gaining 0.8% overnight.
The euro rose 0.19% to $1.0548, while sterling was at $1.2204, up 0.24%. The dollar’s rise has put renewed pressure on the Japanese yen, with the yen trading at 149.60 per dollar.
Gold prices rose slightly on Friday but remained below two-week highs hit in the previous session. Spot gold rose 0.4% to $1,876.79 an ounce.
Oil prices rose on Friday after the U.S. tightened its sanctions program against Russian crude exports, raising concerns about supplies in an already tight market. U.S. crude rose 0.95% to $83.70 a barrel and Brent was at $86.66, up 0.77% on the day.
Brent is expected to rise over 2% weekly, while WTI is expected to rise around 1% this week as investors keep a close eye on possible disruptions to Middle East exports due to the Gaza crisis.
Reporting by Ankur Banerjee; Edited by Edwina Gibbs
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