Asian stocks fall on the hawkish stance of Fed officials

An electronic listing board will be displayed inside a conference hall in Tokyo, Japan on November 1, 2021. REUTERS / Issei Kato

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  • MSCI Asia ex-Japan falls after Fed officials hit hawkish tones
  • Bank of Korea raises reference rate 25bps to 1.25%
  • Yen catch bids amid risk-off mood, gold firms

TOKYO, Jan. 14 (Reuters) – Asian stocks were beaten Friday after a fresh volley of hawkish comments from Federal Reserve officials confirmed expectations that US interest rates could rise as soon as March, leaving markets prepared for tighter monetary conditions.

Fed Governor Lael Brainard on Thursday became the last and most senior US Federal Reserve to signal that interest rates will rise in March to fight inflation. read more

Stock markets turned deep red, with MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) declining 0.9% in the middle of the afternoon, while Australia (.AXJO) lost 1.1% and Japanese Nikkei (.N225) gave up 1 , 3%. .

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South Korean equities (.KS11) fell 1.4% after the country’s central bank raised its reference rate by 25 basis points to 1.25% on Friday, as expected, and took it back to where it was before the pandemic as it tries to limit consumer price increases. read more

China’s blue chip index (.CSI300) fell 0.5% and Hong Kong’s Hang Seng index (.HIS) was 0.9%.

“Everyone is very nervous right now. That’s because everything is potentially going to come under pressure from aggressive Fed policies,” said Kyle Rodda, market analyst at IG in Melbourne.

“There is hope that there will be a slow and painless transition to normal politics,” he added. “But it is not necessarily guaranteed that the Fed will take inflation so seriously.”

Fed Governor Christopher Waller, who has repeatedly called for a more aggressive response to high inflation, said later Thursday that a series of four or five US rate hikes could be justified if inflation does not slow.

US inflation measured by the consumer price index rose by 7.0% in December, posting its largest year-on-year increase in almost four decades, data showed on Wednesday. read more


In the bond market, the yield on 10-year US government bonds was 1.720%, offsetting Monday’s two-year high, signaling investors’ preference for collateral for government debt over volatile technology and growth stocks.

A Reuters report that politicians from the Bank of Japan discuss how soon they can start a possible rate hike, helped increase the yield on the yen and Japanese government bonds (JGB). read more

The five-year JGB interest rate reached -0.015%, the highest since January 2016, when the BOJ adopted negative interest rates.

The yen, which has traditionally pulled demand from flights to security, was last traded at 113.70 after hitting its strongest against the dollar in 3-1 / 2 weeks.

Separate data showed that Japan’s wholesale inflation rose by 8.5% year-on-year in December, accelerating at the second-fastest pace ever, a sign that higher raw material and fuel costs are pushing corporate margins. read more

IG’s Rodda said that the markets face a more persistent risk of increasing demand for safe havens, especially around important events involving US central bank policy and US data.

“This is a problem because every asset has undoubtedly been inflated by loose monetary policy,” he added.

“Each asset must be adjusted to reflect higher or tighter monetary policy.”

The dollar index was down 0.1% to 94,638 after hitting a two-month low, pushed down by the strength of the euro, which set a new two-month high of $ 1.1482.

In commodity markets, gold was 0.3% firmer at $ 1,827 per ounce, but still below the January high of $ 1,831.

Oil futures remained weak on expectations that Washington could soon act to cool prices that remain above $ 80 a barrel, while momentum in China to curb eruptions of covid-19 weighed on fuel demand.

Brent was almost flat at $ 84.49 a barrel, while US crude oil lost 18 cents to $ 81.95.

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Editing Shri Navaratnam and Kim Coghill

Our standards: Thomson Reuters Trust Principles.

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