Most Asian share markets followed S&P 500 futures lower on Thursday as speculation of faster hikes in U.S interest rates soured risk appetite globally.
Most Asian share markets followed S&P 500 futures lower on Thursday as speculation of faster hikes in U.S interest rates soured risk appetite globally. The dollar held onto most of its overnight gains courtesy of higher Treasury yields, though the sudden shift to safety spurred demand for the Japanese yen. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.8 percent, while E-Mini futures for the S&P 500 lost 0.5 percent.
Japan’s Nikkei shed 1.2 percent, with office equipment maker Ricoh down more than 5 percent on news it was conducting impairment tests. Chinese markets were in a better mood, returning from their long holiday break with a gain of 1.9 percent for blue chips. On Wall Street, the Dow had ended Wednesday down 0.67 percent, while the S&P 500 fell 0.55 percent and the Nasdaq 0.22 percent.
The retreat came after minutes of the Federal Reserve’s last policy meeting showed the usual concerns that inflation might disappoint, but also an expectation of faster economic growth due to fiscal stimulus. In particular, members agreed that “the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate.”
That led investors to narrow the odds on faster hikes with a host of Fed fund futures hitting contract lows. Three rate rises are now almost fully priced in for this year, compared to two as recently as December. “Participants saw a more favourable outlook as supporting gradual rate hikes,” noted Barclays analyst Michael Gapen.
“Since then, more stimulus has arrived and there is some tentative, though not conclusive, evidence of stronger wage and inflation data,” he added. “We continue to expect four rate hikes in 2018 and 2019.” That risk was not welcome in the Treasury market, where yields on 10-year notes touched their highest in four years, and those on two-year paper the highest in nine.
(Reporting by Wayne Cole; Editing by Eric Meijer and Kim Coghill)