Asian stocks were broadly lower, and Treasuries steadied after a rally on Wednesday, ahead of the Federal Reserve's preferred inflation gauge that will help determine the future path of interest rates.
Australian, Japanese and South Korean stocks fell on Thursday, while shares in China rose after sweeping measures to support Hong Kong’s property sector. U.S. stock futures were lower in early Asian trading after small losses for the S&P 500 and Nasdaq 100 on Tuesday.
The tone from Beijing has changed recently, and the gains in Chinese stocks over the past two weeks could lead to a rebound, according to Brendan Ahern, chief investment officer at Krane Fund Advisors LLC, speaking on Bloomberg Television. “We hope that trend continues,” he said. “If we can make money in China, more money will come back.”
Bitcoin extended its gains after surging above $60,000 for the first time in more than two years yesterday, reflecting fresh demand from exchange-traded funds. The coin touched nearly $64,000 on Wednesday. The 2021 record was just under $69,000.
US stocks decline
Notable moves in Asian stocks included a jump in shares of Japanese lender Aozora Bank Ltd., after a fund linked to activist investor Yoshiko Murakami said it owned shares in the bank.
U.S. stocks fell yesterday after data showed strength in consumer spending despite a slight slowdown in U.S. gross domestic product growth in the fourth quarter of 2023. The data comes ahead of the Federal Reserve’s preferred inflation gauge due out today and was broadly supportive of the caution expressed by Fed officials in recent weeks.
U.S. stocks have reached a critical turning point, and are now poised to either rally or expand, according to Craig Johnson of Piper Sandler, who added that technical evidence suggests a 10% market move is more likely to be down than up.
Important economic data
Asian Treasuries were steady after the 10-year yield fell 4 basis points and the two-year yield, which is sensitive to monetary policy, fell 6 basis points. The moves were similar for Australian bond yields in early Asian trade, while New Zealand yields were largely unchanged.
Foreign exchange markets were little changed early on Tuesday, with the Japanese yen leading gains against the dollar among its G10 peers. The greenback rose against most major currencies on Wednesday, led by the New Zealand dollar, which fell 1.2 percent against the greenback.
In Asia, economic reports due today include India's Q4 GDP data, Thailand's current account balance, and inflation data for Sri Lanka and Vietnam.
Fed Signals to Markets
New York Fed President John Williams said yesterday that the central bank has a ways to go in its fight against inflation, and Atlanta Fed President Raphael Bostic urged patience in adjusting monetary policy. Overall, recent comments from Fed officials underscore the importance of data in guiding policy moves.
After the jump in the CPI and PPI, today’s core PCE is likely to highlight the central bank’s difficult path to achieving its 2% target. PCE is seen as a validation of recent comments from officials showing no rush to ease monetary policy.
“The latest data can be viewed as noise and should be ignored outside of its impact on very short-term market movements,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “We’re more interested in the PCE data.”
Traders are currently pricing in about 80 basis points of easing by the end of the year — roughly in line with what officials indicated in December was the most likely move. That equates to three rate cuts in 2024, with the Fed’s moves historically being 25 basis point increases. To put the picture in perspective, swaps traders were pricing in about 150 basis points of cuts this year at the start of February.
In the commodities market, oil continued its declines today after West Texas Intermediate crude prices fell in the previous session. Gold also stabilized after rising in the previous session to trade around $2,035 an ounce.
