HONG KONG (Reuters) – As a result of U.S. inflation figures and comments from central bank officials, investors are concerned that interest rates will be higher for a longer period of time. On Wednesday, Asian markets declined while the U.S. dollar remained steady.
Headline January’s U.S. CPI came in at 6.4% year-over-year, a tad higher than the 6.2% experts had predicted, sparking selling in the bond market and Fed funds futures as prospects for a rate decrease later this year fade.
Fed funds futures now predict a high over 5.2% by mid-year and above 5% by the end of the year.
Two-year Treasury yields, which rise as prices fall, increased by almost nine basis points in New York trading to 4.611%, so extending their premium over 10-year yields – a rare occurrence that consistently portends a recession.
On Tuesday, U.S. equities closed unchanged, while S&P 500 futures fell 0.4% in Asia.
By mid-morning Hong Kong time, MSCI’s broadest index of Asia-Pacific shares excluding Japan (.MIAPJ0000PUS) was down 1.3%, driven by down of more than 1% in Australia (.AXJO) and Hong Kong (.HSI), and analysts anticipated more declines.
The head of Asia Pacific equity research at BNP Paribas, Manishi Raychaudhuri, predicted a degree of moderation in the equity markets, both in developed markets and in Asian markets, based on the earlier (U.S. Fed) rhetoric attempting to maintain higher interest rates for a longer period of time and the recent CPI number.
As a result of the likelihood that U.S. interest rates would remain high, he said that the dollar may recoup some ground against currencies of developing markets.
Overnight, the dollar reached a six-week high of 133.30 Japanese yen; on Wednesday, it lingered around 132.80 yen. It had a more turbulent ride versus other currencies in the wake of the CPI report, but seems to be stabilising after a January decline.
The dollar index remained unchanged at 103.32. The Australian dollar fell to $0.6959 after central bank governor Philip Lowe told a parliamentary committee that rates would need to climb further to limit inflation.
Traders were concerned about rising supply and falling demand, so oil prices declined. U.S. crude lost 0.46% to $78.70 a barrel. Brent oil finished at $85.58 a barrel, down 1.19 percent.
Gold was marginally greater. The spot price of gold was $1,854.92 per ounce. At $22,114, Bitcoin clung to its overnight increase.