Asian equities stable, dollar strong as markets reassess interest rate outlook

By Scott Murdoch

SYDNEY (Reuters) – Asian stock markets stabilized somewhat on Tuesday after suffering sharp falls over the past 24 hours, while the US dollar remained elevated as investors expected interest rates in many developed countries to stay higher for longer.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan edged up 0.4% after US stocks ended the previous session with modest losses. The index is up 0.8% so far this month.

Australia’s S&P/ASX200 rose 0.13% and Japan’s Nikkei stock index rose 0.26%.

Hong Kong’s Hang Seng Index opened up 0.68% and China’s blue-chip CSI300 Index was up 0.3% in early trade.

The Reserve Bank of Australia (RBA) is expected to extend its monetary tightening campaign when it meets later in the day.

The central bank is likely to raise official interest rates by another 25 basis points to 3.35%, according to economists polled by Reuters. The decision will be announced at 0330 GMT.

“Market sentiment is once again dominated by central banks and interest rate repricing,” Kerry Craig, global market strategist at JPMorgan Asset Management, told Reuters.

“Equities have had a strong run since the beginning of the year, so it’s not a big surprise to see a bubble forming now.

“It’s a quiet week for global economic data and when that happens, uncertainty about interest rates is the dominant theme among investors.”

In the Asian trading session, the benchmark 10-year Treasury yield hit 3.6268% compared to its US close of 3.632% on Monday.

The two-year yield, which rises on traders’ expectations for higher Fed fund rates, hit 4.4368% compared to a US close of 4.456%.

The reassessment of higher rates began after strong US jobs growth in January, with jobs rising by 517k, more than double economists’ expectations. The unemployment rate hit 3.4%, the lowest in more than 53 years.

Investors will be closely following a speech by Federal Reserve Chair Jerome Powell at the Economic Club of Washington later on Tuesday.

Overnight on Wall Street, the Dow Jones Industrial Average fell 0.1%, the S&P 500 fell 0.61% and the Nasdaq Composite fell 1%.

“The market has re-evaluated to expect Fed Funds rate to peak just above 5% and now expects only very limited rate cuts, just one in 25 basis points by the end of this year,” ANZ wrote -Economists.

“It is very clear that sentiment is fragile and data dependent and this new defensive stance may need to persist in the near term as risk positions are scaled back.”

The dollar fell 0.04% against the yen to 132.6 after hitting a three-week high of 132.9 during the US trading session.

The European single currency rose 0.1% on the day to $1.0736 after losing 1.16% in a month.

The dollar index, which tracks the greenback against a basket of major trading partner currencies, fell marginally from its US trading level to 103.47. However, it remains well above recent low of 101.55 from Feb 3rd.

US crude rose 0.9% to $74.78 a barrel. Brent crude rose to $81.69 a barrel.

Gold was slightly higher. Spot gold was trading at $1871.65 an ounce. [GOL/]

(Edited by Shri Navaratnam)

Source