Asian stocks fall as rate cut optimism fades: Market Roundup

(Bloomberg) - Asian stocks are set to follow Wall Street lower after solid economic data and a rebound in commodities spurred speculation that major central banks will keep interest rates higher for longer.

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Japanese and Australian equity benchmarks fell, while Hong Kong equity benchmarks were little changed. Better-than-expected data on U.S. jobs and factory goods orders fueled skepticism about the pace of Fed easing, leading traders to expect fewer rate cuts in 2024 than the central bank itself, and lifting the 10-year yield to its highest level since November. This has put pressure on US equities, which have been neglecting to reprice central bank bets during the frenzied rally of the past few months.

"As yields rise, equity bulls may find it difficult to justify buying stocks at these high levels," said Fawad Razaqzada of City Index and Forex.com. Higher crude oil prices pose an additional risk to the inflation outlook. In addition, a slew of jobs reports are expected this week. Trading could be volatile.

Citi's global version of its Economic Surprises Index, which measures the difference between actual releases and analysts' expectations, is nearing a one-year high as data from around the world exceeds expectations. Just this week, the U.S. and China, two of the largest economies in the world, both released strong manufacturing data.

The S&P 500 had its worst day in almost a month. The small-cap index of Tesla Inc. sank nearly 21 TP3T. Wall Street's favorite volatility gauge, the VIX, jumped. The yield on the 10-year U.S. Treasury note rose 4 basis points to 4.351 TP3T. U.S. oil climbed above $85 for the first time since October, copper rebounded and gold hit a new record. Bitcoin fell.

Traders weighed comments from two officials who have a vote on this year's monetary policy decisions as they waited for Fed chief Jerome Powell to speak Wednesday.

San Francisco Fed matron Mary Daly and resonant Cleveland Fed matron Loretta Mester said they still expect the central bank to cut rates three times in 2024 - though they are in no hurry to start lowering borrowing costs.

Swap dealers now expect a rate cut of about 65 basis points this year-lower than the 75 basis points indicated in the Fed's latest "dot plot" forecast.

"Our underlying assumption is that the Fed will make a soft landing and start cutting rates in the second half of the year," said Gargi Chaudhuri of BlackRock." The downside risks to economic growth have diminished, so the risk of the Fed cutting rates only twice now looks higher than the risk of cutting rates four times."

U.S. stocks have surged from October lows even as expectations for Fed rate cuts have been pushed back. JPMorgan Chase & Co. led by Mislav Matejka said earnings need to accelerate to close the gap.

Investors who sold stocks because the Fed might scale back its interest-rate-cutting program may have missed the point. Andrew Slimmon of Morgan Stanley Investment Management said it would be a good sign for the economy, and therefore for the stock market.

"I think a patient Fed confirms the strength of the economy," Slimmon told Bloomberg Television. It's better for the stock market."

Main events of the week

• Wednesday: China Caixin Service Sector Purchasing Managers' Indices

• Wednesday, Eurozone CPI, Unemployment Rate

• On Wednesday, the Purchasing Managers' Index for Japan's service sector

• Wednesday, U.S. ADP Employment, ISM Service Sector

• On Wednesday, Federal Reserve Chairman Simmons Bauer spoke.

• Fed chiefs Austan Goolsbee, Adriana Kugler and Michelle Bowman will also speak on Wednesday.

• Thursday: Eurozone S&P Global Services Purchasing Managers' Index, PPI

• Thursday: U.S. Initial Jobless Claims, Challenger Layoffs

• On Thursday, Fed's Loretta Mester, Alberto Musalem, Thomas Barkin, Patrick Harker, and Austan Goolsbee are scheduled to speak

• On Thursday, the European Central Bank announced its March interest rate decision.

• On Friday, Eurozone retail sales

• On Friday, the U.S. unemployment rate, the number of non-employed persons

• On Friday, Fed Supervisors Michelle Bowman, Thomas Barkin, and Lori Logan spoke

Main Market Movements

stock (market)

• As of 7:26 a.m. Tokyo time, the Hang Seng Index is little changed.

• S&P/ASX 200 futures down 0.4 percent

• Nikkei 225 futures down 0.6 percent

Currency

• Bloomberg Dollar Spot Index down 0.1%

• AUD flat at $0.6518

Encryption Currency

• Bitcoin down 0.1% at $65,630.01

• Ether falls 0.2% to $3,264.7

debentures

• The yield on the 10-year bond rose 4 basis points to 4.35 percent.

• Australia's 10-year bond yield rose 5 basis points to 4.12 percent.

bulk commodities

• Not much change in spot gold

• West Texas Kerosene Intermediate crude up 0.5% to $85.58 per barrel

This story was produced with the help of Bloomberg Automation.

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