Business Maverick

Business Maverick

Asian stocks decline, yen approaches key level: markets wrap

Asian stocks decline, yen approaches key level: markets wrap
Morning commuters in front of the Bank of Japan headquarters in Tokyo, Japan, on Monday, 16 January 2023. (Photo: Kiyoshi Ota/Bloomberg)

Asian stocks fell as volatility gripped global markets from an escalation in tensions in the Middle East, driving oil to further advances. The yen neared a key level, placing traders on alert for possible intervention.

MSCI’s Asia Pacific Index slid 0.9% as benchmarks in Australia, Japan and China slipped, while contracts for US equities fell after the S&P 500 declined on Thursday. The Asian gauge has lost more than 3% this week and is on track for its biggest weekly drop in two months.

Oil traded over the $90-a-barrel mark and gold approached the $2,000-an-ounce level following a report US bases in Iraq and Syria were targeted in drone attacks. Investors were also on edge after an American destroyer in the Red Sea intercepted cruise missiles and drones fired toward Israel by Houthi rebels in Yemen.  

Currency markets remain on tenterhooks as Japan’s finance minister Shunichi Suzuki said it was important the yen moved stably and in line with fundamentals, just as the currency approached 150 per dollar. Eyes will also be focused on unscheduled Bank of Japan bond buying operations should the 10-year yield reach 0.85%. Earlier, markets largely shrugged off Japan’s inflation that slid below 3% for the first time in more than a year. 

Treasuries cooled in Asian trading after Federal Reserve chairman Powell said earlier it will proceed carefully with rate hikes, while citing evidence that policy isn’t “too tight”. Swaps trimmed the implied odds of another Fed rate increase to under 50%, and priced a start to cuts in July, compared with September previously. 

“Jay Powell is putting to bed any chance of a Nov. 1 rate hike. As to not let markets get carried away though, he left the door open for more rate hikes,” said Peter Boockvar, author of the Boock Report. “Short rates are falling as they are likely done, but the rise in long rates is proving again that they are losing their grip on that part of the market.”

Meanwhile, the Chinese central bank added a record injection of short-term funding after banks maintained their benchmark lending rates. The economy gained momentum last quarter, while China’s widest yield gap with the US since 2002 is limiting the PBOC’s scope to reduce rates further to avoid adding downward pressure on the yuan.

Fed Bank of Chicago president Austan Goolsbee said he’s hopeful the US is able to avoid a recession despite rapid and steep interest-rate hikes over the past 18 months. He emphasised the need for the Fed to ensure inflation was on track to ease to its 2% goal and for inflation expectations to stay anchored.

Thursday’s economic reports were mixed. Applications for US unemployment benefits dropped to the lowest level since January as the labour market kept powering ahead. Sales of previously owned US homes fell to the lowest level since 2010 as affordability worsened even further.

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