Asia shares slip, dollar sells off as central bank enthusiasm fades

Bull statues are placed in the font of screens showing the Hong Kong stock index and share prices outside Exchange Square in Hong Kong, China on August 18, 2023. REUTERS/Tyrone Siu/File Photo Obtain licensing rights

SINGAPORE, Nov 22 (Reuters) – Asian stocks retreated from a 2-1/2-month high on Wednesday, with the dollar finding support as investors eased their earlier enthusiasm about the prospect of an end to U.S. interest rate hikes.

MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) was up 0.54%, retreating more than 3% from a week ago and hitting its highest since September on Tuesday. Japan’s Nikkei (.N225) rose 0.29%.

Overnight the S&P 500 (.SPX) snapped a five-session winning streak and fell 0.2%. Chipmaker Nvidia ( NVDA.O ) reported earnings that beat Wall Street expectations after the market closed, but shares fell 1.7% as the company’s China sales outlook weakened.

Nasdaq futures were down about 0.2% and S&P 500 futures were little changed in Asian hours. Volumes may be reduced for the rest of the week with the Thanksgiving holiday in the US on Thursday.

European stock markets were set for a muted open with Eurostax 50 futures up 0.05%, German DAX futures up 0.08% and FTSE futures up 0.06%.

“The short-cover rally that started in November (the Fed meeting) is winding down and buying and selling are beginning to alternate,” Nomura’s chief macro strategist Naga Matsuzawa said in a note to clients.

The Federal Reserve released minutes from that meeting overnight, but traders ruled that policymakers’ promise to “proceed cautiously” from here was not new information.

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Ten-year Treasury yields were lower at 4.3910% in Asian trade. They have fallen about 50 basis points since the Fed kept rates steady earlier in the month.

Interest rate futures markets see no chance of the Fed hiking again and a 30% chance of rate cuts by 90 basis points by 2024, starting in March.

“(The Fed) believes a soft landing is in sight, so it would be foolish to hike above demand,” said Philip Marie, senior U.S. strategist at Rabobank.

“If we see strong economic and inflation data ahead of the December meeting, long-term rates will rebound and be a substitute for a rate hike. So we don’t expect any further hikes.”

Prospects for the Yen

In foreign exchange markets, the dollar, which has been sliding since last week’s benign US inflation report, was lifted by several peers from multi-month lows.

It was broadly flat at $1.09065 to the euro and rose to 148.77 yen on Wednesday. The Australian dollar was at $0.6541 after retreating on Tuesday from resistance at its 200-day moving average of $0.6588.

“We expect bond yield gaps to be a tailwind for the yen and renminbi as inflation continues to moderate in the US and investors discount more rate cuts from the central bank,” said Jonathan Peterson, senior economist at Capital Economics.

“From this point of view, the prospects for the yen look particularly promising… Risks are skewed for another outlier in monetary policy (the Bank of Japan), but this time raising its policy rate while other major central banks cut.”

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More than 80% of economists in a Reuters poll said the Bank of Japan will end its negative interest rate policy next year, and the central bank is moving closer to exiting its controversial monetary stimulus program.

China’s yuan has gained 2% in the past week, holding Asian currencies at 7.1403 against the dollar.

China’s major state-owned banks have been buying the yuan recently to accelerate its recovery, two sources told Reuters on Tuesday.

On the data front, bellwether Singapore’s economy grew faster than initial estimates in the third quarter, helped by a revival in tourism.

Then on Wednesday Reserve Bank of Australia Governor Michael Bullock gave a speech, and US jobless claims were pending.

In commodity markets Brent crude was at $82.32 a barrel, down 0.16% on the day. Singapore iron ore futures rose more than 10% on the month to settle at $131 a tonne.

Bitcoin fell 1% to $36,416 after Binance chairman Changpeng Zhao resigned and pleaded guilty to violating US anti-money laundering laws as part of a year-long investigation into the $4.3 billion crypto exchange.

Editing by Sam Holmes & Sri Navaratnam

Our Standards: Thomson Reuters Trust Principles.

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