Asian stocks fall on interest rate worries

Singapore — Asian shares fell on Tuesday after US Federal Reserve officials cemented the view that US interest rates are likely to remain elevated for some time, while the yen slid to near a one-year low, putting traders on watch for intervention from Japanese authorities.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.36% to their lowest since November 28, 2022. Japan’s Nikkei fell 1.5%, while Hong Kong’s Hang Seng index was 1% lower. Chinese markets were closed for the week because of the Golden Week holiday.

US Federal Reserve officials said that monetary policy would need to stay restrictive for “some time” to bring inflation back down to the Fed’s 2% target.

“I remain willing to support raising the federal funds rate at a future meeting if the incoming data indicates that progress on inflation has stalled or is too slow to bring inflation to 2% in a timely way,” Fed governor Michelle Bowman said on Monday in prepared remarks to a banking conference.

Still, the hawkish rhetoric from the Fed officials comes as the debate rages on over another possible rate hike this year.

Fed funds futures traders are pricing in a 26% chance of a rate hike in November, and a 45% likelihood of an increase by December, according to the CME Group’s FedWatch Tool.

Australia’s S&P/ASX 200 index was 1.27% lower, while the Australian dollar eased 0.16% to $0.635 ahead of the policy decision from the Reserve Bank of Australia later on Tuesday, where the central bank is expected to hold rates steady.

All but two of 32 economists in a September 27-28 poll conducted by Reuters expected Australia’s central bank to hold its official cash rate at 4.10%. Two forecast a 25 basis-point hike.

“We still think there is one more hike in the pipeline, either for next month’s meeting or the December meeting,” said Rob Carnell, Asia-Pacific head of research at ING. “If it were down to us, we would wait for another month of rising inflation and the third-quarter inflation numbers. The market is not looking for any further tightening until next year.”

In the foreign exchange market, the focus remains on the Japanese yen as the currency inches closer to the 150/dollar mark, a level traders speculate could lead to intervention from the authorities.

The yen was last at 149.83/dollar in Asian hours, having scaled a fresh near 12-month low of 149.895 earlier in the session.

Last September, Japanese authorities conducted their first intervention in 24 years, when the yen weakened past 145/dollar, and speculation has mounted that they will step in again with the yen under constant pressure due to a yawning yield gap against the dollar.

Japanese finance minister Shunichi Suzuki said on Tuesday authorities were watching the currency market and stood ready to respond, repeating a warning against speculative moves that did not reflect economic fundamentals.

The dollar index, which measures the US currency against six rivals, rose 0.093% to scale a fresh 10-month peak.

The yield on 10-year treasury notes was down 0.7 basis points to 4.676% in Asian hours after touching 4.703%, the highest since October 2007, in the Monday session. The yields got a boost after an agreement to avert a partial US government shutdown reduced demand for the debt before jobs data this week.

US crude fell 1.04% to $87.90 a barrel and Brent was at $89.73, down 1.08% on the day. Spot gold dropped 0.4% to $1,820.50 an ounce. US gold futures fell 0.27% to $1,825.00 an ounce.

Reuters