| 22 February 2024, Thursday |

Asia tracks Wall St lower as U.S. inflation bets perk up

As evidence of a strong U.S. economy fuelled predictions for higher inflation and an early reduction of Federal Reserve support, Asian equities followed Wall Street lower on Friday.

After better-than-expected employment data overnight fueled hopes for a solid reading for nonfarm payrolls on Friday, while a gauge of service sector activity surged to a record high, U.S. Treasury yields soared, raising the dollar and hitting tech equities.

Early in the Asian session, Japan’s Nikkei sank 0.8 percent, while MSCI’s broadest index of Asia-Pacific equities outside Japan declined 0.3 percent.

At the open, Chinese blue chips were down approximately 0.1%.

On Wall Street, the S&P 500 lost 0.4%, while the Nasdaq Composite suffered a 1% slide. The Dow Jones Industrial Average fared relatively better, slipping 0.1%.

U.S. stocks got some relief into the close on reports that President Joe Biden is willing to compromise over a proposed corporate tax hike.

The 10-year Treasury yield rose as high as 1.6320% in Asia, after advancing nearly four full basis points overnight.

The dollar index held Thursday’s 0.7% rally, its biggest since April, to hover around 90.50.

“U.S. real rates have moved higher – not great for risk or sentiment,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a note to clients.

“Tech is looking pretty shaky.”

While Fed officials have consistently said they expect current inflationary pressures to be transitory and for ultra-easy monetary policy to stay in place for some time, they are also increasingly touting the need to at least start talking about a tapering of stimulus.

New York Fed President John Williams said on Thursday that the U.S. Economy is still far from the point at which the central bank might begin to withdraw its support, although it makes sense for officials to begin discussing their options for adjusting policy.

Fed Chair Jerome Powell speaks on central banks and climate change at a conference later in the global day.

Investors are carefully parsing the economic data to gauge if inflation could prove sticky enough to force the Fed’s hand on tapering.

Last month, much-weaker-than-expected nonfarm payrolls numbers knocked back those expectations, weakening Treasury yields and the dollar.

This month, economists forecast private payrolls likely increased by 600,000 jobs in May, after rising only 218,000 in April.

“Clearly, traders are covering USD shorts into the jobs data,” Pepperstone’s Weston wrote.

“I’m not even going to try to forecast this one; it’s a lottery,” she says, despite the fact that the so-called “whisper number” is closer to 790,000.

Gold has remained down after a 2% drop on Thursday, its worst since February, thanks to a stronger dollar.

On Friday, crude oil slid from more than two-year highs after weekly US crude stockpiles decreased dramatically while fuel inventories surged more than expected.

Brent futures declined 0.4 percent, or 25 cents, to $71.06 a barrel on Thursday, after reaching their highest level since May 2019. WTI in the United States fell 0.3 percent, or 23 cents, to $68.58 a barrel, after reaching a high of $69.40 a day earlier, the highest since October 2018.

  • Reuters