SINGAPORE: Asian stocks inched lower on Friday as traders pondered the near term US monetary policy path after Federal Reserve officials suggested that interest rates may need to stay higher for longer even as inflation shows early signs of easing.
Data on Wednesday showed cooling US consumer price inflation, prompting markets to swiftly price in at least two rate cuts this year but the excitement soon fizzled out as the latest report showed the labour market remains tight, while central bankers were still cautious about inflation.
Traders are pricing in 47 basis points of easing this year from the Fed, with a rate cut in November fully priced in. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.14% after touching a two-year high on Thursday.
The index was still set for an increase of 2.6% this week for its fourth straight week of gains.
Japan’s Nikkei fell 0.48%, while China stocks grinded higher, with the blue chip gauge gaining 0.15% in early trading.
Hong Kong’s Hang Seng Index was the bright spot for Asia, rising 0.77% and touching its highest since August 2023.
“Following the incremental softening of the US data, this is probably as far as the risk rally can go in the absence of tier-1 data over the coming week,” said Nicholas Chia, Asia macro strategist at Standard Chartered.
While the data this week offered the Fed good news on two fronts, policymakers haven’t openly shifted views yet about the timing of rate cuts investors are convinced will start this year.
Monetary policy is “restrictive” and “is in a good place,” Federal Reserve Bank of New York President John Williams said.
Asian markets track Wall St records after US inflation data
“I don’t see any indicators now telling me … there’s a reason to change the stance of monetary policy now.”
Data on Thursday showed the number of Americans filing new claims for jobless benefits fell last week, indicating that labour market conditions remain fairly tight even as job growth is cooling. Overnight, the Dow rose as high as 40,051.05 while the S&P 500 and Nasdaq also hit record highs before gradually losing steam and finishing slightly lower on the day.
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