Stocks fall on rate-cut doubts, Japan warns on yen: Markets wrap

Asian stocks tracked a decline on Wall Street following hotter-than-expected US inflation data, while the yen rose after its slump on Tuesday triggered a warning from Japan.

Shares fell in South Korea, Japan and Australia. Hong Kong stocks reversed an early drop as trading resumed after the Lunar New Year holiday, with investors focusing on what more Beijing can do stem the rout. The yen gained as much as 0.2% to 150.50 per dollar after Masato Kanda, Japan’s top currency official, cautioned that recent movements have been rapid, and authorities stand ready to take steps if needed.

“Remarks from the authorities probably put a cap on the dollar-yen today, but they were not intense enough to change the course of the pair,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities Co. “The bigger impact to cause the dollar’s slight decline and the yen’s rebound is a halt in US Treasury yields in Asia and a drop in Japanese equities.”

Treasury yields steadied after soaring Tuesday as traders trimmed bets for an early Federal Reserve interest-rate cut. Japan’s 10-year government bond yield climbed to the highest level since December, while a gauge of the dollar traded near a three-month high. Yields on Australian and New Zealand debt also advanced.

“The BOJ pushback last week on tightening expectations was a reality check for markets that had gone far in expecting a BOJ pivot,” said Charu Chanana, head of foreign-exchange strategy at Saxo Bank. “So yen now has a double whammy of adjusting to more modest BOJ tightening expectations and a delay in Fed rate cuts.”

The Golden Dragon index of US-traded Chinese companies fell 2.7% on Tuesday, its biggest decline in almost a month, while China remains closed for Lunar New Year holidays. Swap traders ratcheted down their expectations for a Fed cut before July while the stock market’s “fear gauge” — the VIX — closed above 15 for the first time since November. Contracts for European stocks slipped, while US equity futures were little changed.

The American CPI data came as a disappointment for investors after a recent downdraft in price pressures that helped build expectations for rate cuts this year. The numbers also gave credence to the wait-and-see approach highlighted by Jerome Powell and a chorus of Fed speakers.

Swap contracts referencing Fed policy meetings — which as recently as mid-January fully priced in a rate cut in May and 175 basis points of easing by the end of the year — were roiled. The odds of a May cut dropped to about 32% from about 64% before the inflation data, with fewer than 90 basis points anticipated this year.

In other markets, oil was steady after the highest close in two weeks, following a industry report which flagged a substantial build in US crude stockpiles. Gold steadied after plunging below $2,000 an ounce for the first time in two months while Bitcoin traded near the $50,000 mark.

Key Events this Week:

• Eurozone industrial production, GDP, Wednesday
• BOE Governor Andrew Bailey testifies to House of Lords economic affairs panel, Wednesday
• Chicago Fed President Austan Goolsbee speaks, Wednesday
• Fed Vice Chair for Supervision Michael Barr speaks, Wednesday
• Japan GDP, industrial production, Thursday
• US Empire manufacturing, initial jobless claims, industrial production, retail sales, business inventories, Thursday
• ECB President Christine Lagarde speaks, Thursday
• Atlanta Fed President Raphael Bostic speaks, Thursday
• Fed Governor Christopher Waller speaks, Thursday
• ECB chief economist Philip Lane speaks, Thursday
• US housing starts, PPI, University of Michigan consumer sentiment, Friday
• San Francisco Fed President Mary Daly speaks, Friday
• Fed Vice Chair for Supervision Michael Barr speaks, Friday
• ECB executive board member Isabel Schnabel speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 1:07 p.m. Tokyo time
• Japan’s Topix fell 1.3%
• Australia’s S&P/ASX 200 fell 0.9%
• Hong Kong’s Hang Seng rose 0.1%
• Euro Stoxx 50 futures fell 0.3%
• Nasdaq 100 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0711
• The Japanese yen rose 0.2% to 150.49 per dollar
• The offshore yuan was little changed at 7.2277 per dollar
• The Australian dollar rose 0.1% to $0.6462

Cryptocurrencies

• Bitcoin was little changed at $49 556.2
• Ether rose 0.3% to $2,640.57

Bonds

• The yield on 10-year Treasuries was little changed at 4.31%
• Japan’s 10-year yield advanced four basis points to 0.760%
• Australia’s 10-year yield advanced nine basis points to 4.27%

Commodities

• West Texas Intermediate crude was little changed
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.