By Ankur Banerjee
SINGAPORE (Reuters) – Asian shares fell on Thursday and the dollar was near a three-week high as traders dialled back bets of steep and early rate cuts this year, with the minutes of the Federal Reserve’s last meeting failing to provide clues to when U.S. cuts might start.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.26% and was headed for third straight day of losses in a sobering start to the year. Japan’s Nikkei fell 1% on its first trading day of the year.
China stocks remained under pressure, with uncertainties about a recovery in the world’s second-biggest economy keeping investors on the fence. The blue-chip CSI 300 Index fell 0.37%, while Hong Kong’s Hang Seng Index eased 0.1%.
A private-sector survey showed on Thursday that China’s services activity expanded in December at the fastest pace in five months thanks to a solid rise in new business, in contrast to an official survey on Sunday that showed a sub-index of services activity shrank again at the end of 2023.
Minutes of the Fed’s Dec. 12-13 meeting released on Wednesday showed a growing sense among policymakers that inflation was under control and rising concerns about the risks that “overly restrictive” monetary policy may pose to the economy.
“The Fed minutes suggest that many members endorsed the ‘higher rates for longer’ narrative, while those that projected rate cuts in 2024 viewed cuts coming later in the year,” said Qunicy Krosby, chief global strategist for LPL Financial.
Krosby said in an email the minutes underscored an “uncertain” policy path suggesting expectations for a rate cut in March may need to be ratcheted down further.
Markets are now pricing in a 70% chance of the Fed cutting rates in March compared to 90% a week earlier, according to CME FedWatch tool.
Investors have also lowered their expectations for the year, with futures pricing showing less than 150 basis points (bps) of easing anticipated this year versus 160 bps last week.
Goldman Sachs analysts though still expect the first rate cut in March and five total cuts in the year, calling the comments in the minutes dovish.
“We think it is already clear that inflation is moving down sustainably … the comment implies that once this threshold is met, the policy rate should no longer be restrictive, not just that cuts should begin,” they said in a note to clients.
Fed officials in December predicted 75 bps of rate cuts in 2024, driving money-market bets for around double that amount amid market optimism that spurred a year-end rally in stocks and bonds.
Richmond Federal Reserve President Thomas Barkin said on Wednesday the U.S. central bank was “making real progress” towards taming inflation without inflicting major damage on the job market, with a hoped-for soft landing “increasingly conceivable.”
The spotlight will now be on the eagerly awaited U.S. nonfarm payrolls report scheduled for Friday to provide further clues on the labour market, which has shown signs of easing.
U.S. job openings dropped by 62,000 to 8.79 million for the third straight month in November, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report, on Wednesday.
Benchmark 10-year Treasury yields briefly climbed above 4% on Wednesday before heading lower and were last at 3.920% in Asian hours. [US/]
In the currency market, the dollar’s strong start to the year remained unhindered. Against a basket of currencies, the dollar was up 0.088% at 102.49, just shy of the three-week high of 102.73 it touched on Wednesday. [FRX/]
Against the yen, the dollar hovered near a two-week peak and last bought 143.42 yen, having jumped nearly 1% higher on Wednesday.
U.S. crude rose 0.33% to $72.94 per barrel and Brent was at $78.34, up 0.12% on the day.
Oil prices climbed 3% on Wednesday following a disruption at Libya’s top oilfield that added to fears that mounting tensions in the Middle East could disrupt global oil supplies. [O/R]
(Reporting by Ankur Banerjee in Singapore; Additional reporting by Chibuike Oguh in New York; Editing by Jamie Freed)
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