MSCI’s Asia Pacific Index dropped for a fourth day, and is set for its first decline in five weeks, as shares from Hong Kong to mainland China, Japan and Australia fell. US contracts ticked higher after the S&P 500 fell the most this month on Thursday.

Swaps now fully price the Fed’s first full quarter-point rate cut in December, versus November a day earlier. Growth in activity at service providers was the fastest in a year and manufacturing output expanded at a quicker pace. Such resilience is making it difficult for inflation to cool, helping explain why the Fed is intent on keeping rates higher for longer. 

Emerging Asian currencies, including South Korea’s won, Malaysia’s ringgit and the Thai baht, fell on the back of a stronger dollar. The greenback extended its gains against G10 peers to a fifth day, the longest streak since April.

“It appears that markets are in the ‘good (economic) news is bad market news’ mode as they fret ‘higher for longer’ Fed,” said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd. “The weight of higher US yields and a stronger US dollar appear to be bearing down on EM Asian stocks and FX.” 

A rally in global stocks faltered this week as investors became less certain on the path of US interest-rate cuts with Fed members seeking more evidence of easing inflation. A pause in Chinese stocks’ gains this week and strength in the US dollar also weighed on sentiment. Investors will also watch the shift to the adoption of a new faster settlement cycle in the US, which the country’s securities regulator warned may trigger some failed trades initially.

In Japan, inflation eased for a second month as investors continued to weigh whether the Bank of Japan has capacity to raise interest rates further this year. The yield on 10-year Japanese government bonds topped 1% this week as markets almost fully priced a 10 basis point hike at the July meeting, according to data compiled by Bloomberg. The yen is trading around 157 per dollar.

The cooling in prices, however, won’t “deter financial markets from speculating on further Bank of Japan policy tightening,” said Kristina Clifton, a senior economist at Commonwealth Bank of Australia in Sydney. “At this stage, we expect the BOJ to wait until around October before increasing interest rates again,” which could place further pressure on the yen, she added. 

In the corporate world, Alibaba Group has raised $4.5-billion from a convertible bond sale, in one of the largest such offerings in recent years, according to people familiar with the matter. In Japan, Kobayashi Pharmaceutical shares surged after Oasis Management CIO Seth Fischer said there’s a potential for the stock to jump 70% if the Japanese drugmaker engages with the activist fund.

Boeing Co. fell 7.6% on Thursday, the most in four months, after it said it will continue to burn cash this quarter and in the full year.

In commodities, oil was steady around its lowest level in over three months as the market flashed signs of weakness ahead of the US summer driving season. Elsewhere, gold reversed early losses after seeing selling on Thursday loss following the US economic data.

Higher for longer

Atlanta Fed president Raphael Bostic on Thursday reiterated the chorus from officials this week that the central bank needs to be patient on its next move as there is still considerable upward pressure on prices. Minutes of the Fed’s May meeting released this week showed legislators coalesced around a desire to hold rates higher for longer and “many” questioned whether policy was restrictive enough to bring inflation down to their target. 

Treasuries gained slightly after falling on bets on higher-for-longer US interest rates. An index tracking greenback strength was little changed in Friday Asian trading, after rising for a fourth day following higher Treasury yields. 

Meanwhile, after another round of blowout earnings from artificial-intelligence darling Nvidia Corp, the chipmaker jumped over 9% on a solid outlook and topped the historic $1,000 mark. Together with the economy’s steady advance, the S&P 500 likely has further room to rise, according to JPMorgan Chase & Co.’s trading desk.