Asian shares slip, dollar up on higher rates outlook

Asian shares slip, dollar up on higher rates outlook

Asian shares extended losses and the dollar crept up to near two-month highs on Friday after the U.S. Federal Reserve this week projected higher interest rates in 2023.

“It’s a difficult call, but I think what is pretty obvious is that the inflation genie is starting to sneak out of the bottle, and that will be a major driver of interest rates in the short to medium term,” said James McGlew, executive director of corporate stockbroking at Argonaut in Perth.

European stock futures pointed to small declines at the open, with pan-region Euro Stoxx 50 futures down 0.02%, DAX futures falling 0.06%, FTSE futures inching 0.01% lower, and CAC 40 futures easing 0.02%.

In afternoon trade in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was off 0.1%, erasing earlier gains to extend declines into a fifth session.

Chinese blue-chip A-shares (.CSI300) swung between gains and losses before ending flat, while Taiwan shares (.TWII) lost 0.41%. Japan’s Nikkei (.N225) fell 0.19%.

Gold prices, which plunged following the Fed comments on Wednesday, edged higher but were still set for their worst week since March 2020. Spot gold was last up 0.65% at $1,784.90 per ounce.

Adding to indications of a continued rebound in the world’s largest economy, new U.S. data on Thursday showed growing factory activity and an easing in layoffs despite an unexpected rise in weekly jobless claims.

Hopes for a strong U.S. recovery pushed technology stocks higher on Thursday, lifting the Nasdaq Composite (.IXIC) up 0.87%. But worries about inflation and higher rates weighed on the broader market, with the S&P 500 (.SPX) edging down 0.04%. The Dow Jones Industrial Average (.DJI) fell 0.62%.

“The Fed for a long time was sending a very strong signal that they were prioritising the labour market, and they want this broad, inclusive recovery and healing of the labour market and they’re going to run the economy red-hot to get there,” said Richard Franulovich, head of FX strategy at Westpac.

“Now … (inflation) is more of a priority. So that’s the big wake-up call for markets. A very big wake up call.”

U.S. Treasury yields, which had jumped on the rate hike projections, turned lower on Friday afternoon. Benchmark 10-year yields stood at 1.5005%, down from a close of 1.511% on Thursday.

The 30-year bond yield slid to 2.0859% from 2.101%.

The dollar index nevertheless climbed 0.11% to 91.981, not far off Thursday’s more than two-month peak of 92.010 following the Fed meeting. The dollar pulled back against the yen to 110.03 , and the euro softened 0.08% to 1.1900.

Oil prices took a hit from the strong dollar as concerns over demand and new Iranian supply also weighed.

Global benchmark Brent crude was down 0.53% at $72.69 a barrel after settling at its highest price since April 2019 on Wednesday. U.S. West Texas Intermediate crude , which touched its highest level since October 2018 on Wednesday, shed 0.38% to $70.77.

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