Asian stocks fell on Wednesday, with a strong dollar keeping the yen near six-month lows, with traders betting the Federal Reserve will likely be slow to cut rates after data showed the U.S. economy and the labor market remained stable.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%, with Japan’s Nikkei shedding 0.8%. On Wall Street, the three main indices ended lower, as the data fueled fears of a rebound in inflation. [.N]
China’s CSI300 index was down 0.3%, while Hong Kong’s Hang Seng index slipped 0.55% in early trade. [.SS]
The yen was at 157.98 per dollar after touching 158.425 on Tuesday, a level last reached in July when Tokyo stepped in to support the yen. The yen lost more than 10% last year against the dollar and has had a rough start to 2025.
In 2025, investors focused on changing interest rate expectations in the United States, the growing divergence in economic policies between the United States and other economies, and the threat of tariffs when President-elect Donald Trump will enter the White House on January 20.
In December, the Fed forecast only two rate cuts for 2025, fewer than the four it had previously predicted. Markets are currently pricing in 38 basis points of easing this year, with the Fed’s first cut fully scheduled for July.
Data on Tuesday showed that U.S. job openings rose unexpectedly in November while hiring fell, suggesting the job market has slowed at a pace that probably does not require the Fed be in a hurry to reduce interest rates.
“It’s certainly too early to talk about a re-acceleration of inflation from this data set, and markets will take bigger cues from the non-farm data on Friday,” said Kyle Chapman, an analyst at the foreign exchange markets at Ballinger Group.
“With the market now firmly convinced that there will be only one rate cut this year, I think there is increasing room for a pushback from the hawkish reassessment of the Fed’s path , which is already too high.
Yields on the 10-year Treasury rose to 4.699% after the data, the highest level since April, and were at 4.6768% in Asian hours. [US/]
That left the Dollar Index, which measures the U.S. currency against six other major units, at 108.65, not far from the two-year high hit last week. The index is up 7% in 2024 as investors expect U.S. rates to stay high for longer.
The spotlight will now be on the nonfarm payrolls report due Friday, with investors analyzing the data to gauge the date of the Fed’s next rate cut. The number of nonfarm payrolls likely increased by 160,000 in December, following a rise of 227,000 in November, according to a Reuters survey.
James Knightley, chief international economist at ING, said the combination of decent growth, elevated inflation concerns and a jobs market that is slowing, but not collapsing, continues to see the market undercut the pricing of potential rate cuts this year.
“The risk is that a higher jobs figure and a new core CPI estimate of 0.3% month-on-month next week will reduce these forecasts further.
The US inflation report for December 2024 is scheduled to be released on January 15.
In commodities, oil prices rose in early trade, with Brent oil up 0.34% at $77.31 a barrel, while West Texas Intermediate (WTI) oil was up 0. .5% to $74.63 per barrel. [O/R]
Gold prices fell slightly under pressure from higher bond yields and a stronger dollar. They were last at $2,647 an ounce. [GOL/]
