Asian stocks hit a one-week low on Friday, while the US dollar was steady as higher Treasury yields weakened investor sentiment following Federal Reserve Chair Jerome Powell’s hawkish remarks, which eliminated the possibility that interest rates have peaked.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.00% to $486.39, its lowest level in a week. The index last traded 1.09% lower to $486.76, while Japan’s Nikkei 225 index was down 0.16%.
China’s Shanghai Composite index fell 0.52%, while Hong Kong’s Hang Seng index stumbled 1.66% on renewed concerns over the world’s second-largest economy after the latest data showed that the consumer price index (CPI) slid 0.2% year-over-year in October.
The slump signaled continued easing in the country’s monetary and fiscal policy.
In the US, the three major stock indices concluded the session on a negative note, with the S&P 500 and the Nasdaq ending their longest winning streaks in two years as market expectations over a looser monetary policy diminished.
The dollar index kept overnight gains and last stood at $105.89. The greenback traded near a one-year high of 151.39 against the Japanese yen and posted a one-week peak against its Australian and Kiwi counterparts.
In the bond market, the 10-year Treasury yield lost 1 basis point to 4.62% after increasing 10.7 basis points (bps) overnight. The yield was last trading at 4.61%. The 30-year Treasury notes also slipped 2.1 bps to 4.75%, having climbed by 12.1 bps overnight.
Fed Interest Rate Cut Still Uncertain
Fed officials, including Powell, on Thursday expressed their uncertainty on whether interest rates were sufficiently high to stop combatting inflation.
Powell said the US central bank follows a monetary policy that is restrictive enough to lower inflation to their 2% target over time, adding that they were unsure that they had reached such a position.
The Fed Chair’s statement and a lackluster $24 billion sale in 30-year Treasuries sparked a surge in yields, weighing on equities and bolstering the dollar.
Research head Rob Carnell said it was futile to urge the market to expect rate cuts until before they seem necessary.
Investors have been seeking signs of US interest rates peaking after the Fed left benchmark interest rates unchanged at 5.25%-5.50% in the prior week, strengthening the possibility of the end of the rate hike cycle. The rates have stayed within that range since July.
According to Carnell, the central bank needs rates and bond yields relatively elevated to tighten financial conditions to a point where they can push inflation down and eventually cut interest rates.
