Singapore — 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 providing few clues on when US cuts might start.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.17% and was headed for the third straight day of losses in a sobering start to the year at 0611 GMT. Japan's Nikkei slipped 0.5% on its first trading day of the year.
In Europe, futures indicated a mixed opening for markets. Eurostoxx 50 futures were down 0.04%, German DAX futures eased 0.07% and FTSE futures added 0.08%.
Minutes of the Fed's December 12-13 meeting released on Wednesday showed a growing sense among policymakers that inflation was under control and raised concerns about the risks of “overly restrictive” monetary policy on 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 Quincy 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 slightly lowered their expectations for the year, with futures pricing showing less than 150 basis points (bps) of easing anticipated this year vs 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 about double that amount and spurring a year-end rally in stocks and bonds.
Richmond Federal Reserve president Thomas Barkin said on Wednesday the US 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”.
— China stocks remained under pressure, with uncertainties about a recovery in the world's second-biggest economy keeping investors at bay
The spotlight will now be on the eagerly awaited US nonfarm payrolls report scheduled for Friday to provide further clues on the labour market, which has shown signs of easing.
US job openings dropped by 62,000 to 8.79-million for the third straight month in November, the Labour Department said in its monthly Job Openings and Labour Turnover Survey report on Wednesday.
In Asia, China stocks remained under pressure, with uncertainties about a recovery in the world's second-biggest economy keeping investors at bay. The blue-chip CSI 300 Index sank 1.31%, while Hong Kong's Hang Seng index fell 0.70%.
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 that showed a subindex of services activity shrank again at the end of 2023.
Benchmark 10-year Treasury yields briefly climbed above 4% on Wednesday before heading lower and were last at 3.924%.
In the currency market, the dollar held on to its strong start to the year. Against a basket of currencies, the dollar was up 0.068% at 102.47, just shy of the three-week high of 102.73 it touched on Wednesday.
Against the yen, the dollar hovered near a two-week peak and last bought 143.76 yen, having jumped nearly 1% on Wednesday.
US crude rose 0.91% to $73.36 a barrel and Brent was at $78.78, up 0.68% on the day, extending their gains as disruption at Libya's top oilfield added to fears that rising tensions in the Middle East could disrupt global oil supplies.
Spot gold added 0.1% to $2,043.09/oz, after touching its lowest since December 21 on Wednesday.
Reuters
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