SINGAPORE (Reuters) – Asian stocks fell on Friday, heading for their biggest single-day percentage drop in a week, after stronger-than-expected U.S. consumer price numbers strengthened the Federal Reserve’s case for keeping interest rates high for the fiscal year. long.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.2%, after hitting a three-week high on Thursday.
However, the index is still poised to post a healthy gain of 1.4% during the week, ending a three-week losing streak.
The poor mood in Europe is set to continue, with Eurostoxx 50 futures down 0.19%, German DAX futures losing 0.14% and FTSE futures down 0.05%.
Inflation reports from Sweden, Spain and France due later today will be in focus.
The increase in US consumer prices for September contained a surprise rise in rental costs, and traders now see a stronger chance that the Fed will eventually raise interest rates again this year.
Futures contracts settled on the Fed rate reflect a 40% probability of a rate hike in December, compared to a roughly 28% probability before the CPI report.
Ryan Brandham, head of global capital markets for North America at Validus Risk Management, said the data highlights the challenges the Fed will face in bringing inflation down to its 2% target.
Separate data also showed that the number of Americans receiving benefits after an initial week of aid, an indicator of employment, rose by 30,000 to a still-low level of 1.702 million during the week ending September 30.
“The labor market decline is key to the Fed achieving its goal of bringing inflation back on target, and hawks calling for another hike will be supported at least on the basis of these numbers,” Brandham said.
The inflation report coupled with weak demand for the US 30-year bond auction sent Treasury yields higher on Thursday.
In Asian hours on Friday, the 10-year Treasury yield fell 4.1 basis points to 4.670% but remained far from a two-week low of 4.5300% touched a day earlier.
The recent gains in stocks and a decline in Treasury yields followed comments from Federal Reserve officials suggesting that US interest rates – which tend to raise global borrowing costs – may have finally peaked.
“Much of the ‘good’ work done last week in flattening the US yield curve has been undone by the latest US CPI report,” said Ray Attrill, head of FX strategy at National Australia Bank.
Data on Friday showed that China’s consumer prices remained flat in September, while factory gate prices contracted at a slower pace, indicating continued deflationary pressures.
But China’s exports and imports contracted at a slower pace for a second month in September, adding to signs of gradual stabilization in the world’s second-largest economy.
China’s blue-chip CSI300 index (.CSI300) fell 1.1%, while the Hang Seng Index (.HSI) fell 2%. Japan’s Nikkei (.N225) fell 0.53%, while Australia’s S&P/ASX 200 (.AXJO) lost 0.47%.
The sharp escalation of tensions in the Middle East this week also ensured the mood remained cautious across markets.
Investors will then focus on comments from Federal Reserve Chair Jerome Powell who is scheduled to speak on October 19, before the start of the US central bank’s blackout period ahead of its next interest rate decision. The Fed next meets from October 31 to November. 1.
Risk aversion also prevailed in the currency market, with the dollar holding on to its gains achieved overnight. Against a basket of currencies, the dollar fell 0.103% to 106.40, after rising 0.8% overnight.
The euro rose 0.19% to $1.0548, while the British pound recorded $1.2204, rising 0.24%. The rise of the dollar has put the Japanese yen under pressure again, with the yen price reaching 149.60 yen to the dollar.
Gold prices rose on Friday but remained below the two-week highs recorded in the previous session. Gold in spot transactions added 0.4 percent to $1,876.79 per ounce.
Oil prices rose on Friday after the United States tightened its sanctions program on Russian crude exports, raising concerns about supplies in an already tight market. US crude advanced 0.95% to $83.70 a barrel, and Brent crude reached $86.66, up 0.77% on the day.
Brent is heading for a weekly gain of more than 2%, while West Texas Intermediate crude is heading for a rise of about 1% this week, with investors cautiously awaiting the possibility of disruption to Middle Eastern exports due to the Gaza crisis.
Ankur Banerjee reports; Edited by Edwina Gibbs
Our standards: Thomson Reuters Trust Principles.
“Web maven. Infuriatingly humble beer geek. Bacon fanatic. Typical creator. Music expert.”