The probability of the United States Federal Reserve remaining on its hawkish course weighed on Asian equities on Tuesday, with investors looking to the minutes of the most recent Federal Reserve meeting for fresh monetary policy cues.
MSCI’s broadest index of Asia-Pacific equities outside Japan fell 0.34% to 531.85, staying around last week’s six-week low of 529.30.
The index is down roughly 3% this month after rising 8.6% in January, as a wave of strong U.S. economic data fueled concerns that interest rates may need to climb more and remain higher for longer.
Interest rates in the United States are now expected to peak at 5.30% in July and stay over 5% by the end of the year, shifting away from forecasts of a greater rate reduction this year.
The Nikkei 225 index in Japan rose 0.01%, while the S&P/ASX 200 index in Australia declined 0.52%. China’s stock market was expected to begin unchanged, while Hong Kong’s Hang Seng Index was expected to open 0.1% down.
“The backdrop of inflation concerns in the U.S. is still keeping risks of a tighter than expected monetary policy, and yields remain a key focus as U.S. markets return later today,” strategists at Saxo Markets said.
Due to the President’s Day holiday, US markets were closed on Monday.
After reaching a three-month high of 3.929% on Friday, the yield on 10-year Treasury notes rose 3.5 basis points to 3.863%.
The yield on the 30-year Treasury bond increased by one basis point to 3.899%, while the yield on the two-year U.S. Treasury note, which normally moves in lockstep with interest rate forecasts, increased by 5.4 basis points to 4.677%.
The minutes of the Fed’s most recent meeting, at which interest rates were hiked by 25 basis points, were released on Wednesday, drawing the attention of investors.
In the currency market, the dollar remained slightly below recent highs as a three-week gain faded, with traders looking to European and U.S. manufacturing data later Tuesday and Friday’s core PCE price index for guidance. [/FRX]
With the excellent nonfarm payrolls and CPI readings in the United States this month, DBS currency analyst Philip Wee believes the market is ready for another surprise in the PCE data.
The dollar index, which compares the US currency to six others, was recently at 104.01, barely below Friday’s six-week high of 104.67. The euro slipped 0.12% to $1.0669, snapping four months of advances and ending February weaker.
The yen fell 0.12% to 134.40 per dollar, while sterling fell 0.13% to $1.2022.
US crude was up 1.02% at $77.12 a barrel, while Brent was down 0.32% at $83.80.