Asian stocks slip as rate cut hopes begin to fade: markets wrap

Benchmarks in South Korea and Hong Kong led the region’s decline. Mainland Chinese shares resumed their slide after a report showing expansion in the Caixin purchasing managers’ indexes did little to lift sentiment. Contracts on US equities edged lower after the S&P 500 fell 0.7% in Tuesday trading.

Taiwanese equities weakened on news that the region had been hit by the strongest earthquake in 25 years. Shares in Taiwan Semiconductor Manufacturing Co. were lower as the company evacuated factory areas following the shock, casting uncertainty over production at the world’s largest maker of advanced chips.

Pressure on US equities followed better-than-estimated data on US job openings and factory goods orders that added to skepticism about the pace of Federal Reserve easing. Swap traders are currently projecting about 65 basis points of rate reductions this year — less than the 75 basis points signaled in the Fed’s latest “dot plot” forecasts.

Remarks from Fed chair Jerome Powell later Wednesday may offer further clues. He will speak after two other Fed officials who vote on monetary policy decisions this year supported the view for cuts this year in Tuesday comments. 

“Our base case is that the Fed engineers a soft landing and starts to cut rates in the second half of the year,” said Gargi Chaudhuri at BlackRock. “The downside risks to economic growth have diminished, so the risk of only two Fed rate cuts now appears higher than the risk of four cuts.”

San Francisco Fed president Mary Daly and her Cleveland counterpart Loretta Mester said they still expect the central bank to lower rates three times in 2024 — though they’re in no rush to begin lowering borrowing costs.

Treasuries were little changed during Asian hours after further selling pushed yields higher on Tuesday, when the 10-year yield touched the highest level since November. The moves were reflected in Australian and New Zealand yields, which climbed on Wednesday.

The yen was also flat against the greenback at around 151 per dollar, remaining around the weakest level of the year — keeping alive the possibility of official intervention to support the currency. 

Tatsuo Yamasaki, Japan’s former vice finance minister for international affairs, said the government “can step in as soon as the yen falls beyond the current range,” in an interview Tuesday. 

The yuan, meanwhile, traded close to the weak end of its onshore trading band, the latest sign that a recent slew of upbeat economic data hasn’t been enough to bolster the Chinese currency.

In commodities, oil steadied following a rally Tuesday after an industry report pointed to a drawdown in US crude inventories, ahead of an OPEC+ meeting at which the group is expected to affirm current supply cuts. Gold was steady to hold a rally over the past six sessions, while Bitcoin was little changed at around $65,500.

“Rising crude oil prices pose additional risk to the inflation outlook,” said Fawad Razaqzada at City Index and Forex.com. “Additionally, numerous jobs reports are expected throughout the week. Trading could be volatile.” 

In other corporate news, Tesla Inc. delivered just 386,810 vehicles in the first three months of the year, missing Bloomberg’s average estimate by the biggest margin ever in data going back seven years. The carmaker’s shares fell 4.9% on Tuesday in New York.