TOKYO – Asia-Pacific stocks retreated on Friday, slumping toward a second weekly loss as investors fretted about the potential for further Federal Reserve tightening and the effect on the economy.
U.S. short-term Treasury yields held near a one-month high, helping the dollar tick up against major peers, after Richmond Fed President Thomas Barkin overnight added to a chorus of hawkish central bank commentary in recent days.
MSCI’s broadest index of Asia-Pacific shares sank 0.91 percent and was on course for a 1.36- percent weekly decline, after losing 1.16 percent in the previous week.
Mainland Chinese blue chips lost 0.73 percent and the Hang Seng tumbled 1.76 percent. China’s January factory gate prices fell more than economists expected, suggesting that flashes of domestic demand that had stoked consumer prices after the zero-COVID policy ended are not yet strong enough to rekindle upstream sectors.
Australia’s benchmark slid 0.76 percent and South Korea’s Kospi shed 0.72 percent.
Japan’s Nikkei bucked the trend with a 0.25- percent rise, supported by some strong earnings reports.
U.S. equity futures slipped 0.12 percent, after the S&P 500 sank 0.88 percent overnight. German DAX futures pointed to a 0.9 percent decline at the restart, and U.K. FTSE futures signaled a 0.44 percent loss.
“Is inflation calming? That’s really the core question for this year,” Barkin said in a podcast on the Richmond Fed’s website, adding that he felt the decline so far had been “distorted” by some falling goods prices.
Investor focus is now trained on crucial U.S. consumer price data due Tuesday.
“Where is the pain trade? I’d argue the market would be more surprised by an upside surprise than a downside surprise” for the U.S. inflation numbers, Chris Weston, head of research at Pepperstone, wrote in a client note.
“Those not short risk in any great capacity (are) desperate to see the vision of lower inflation take hold.”
At the start of this week, investors had been cheered after Fed Chair Jerome Powell refrained from striking a more hawkish posture following after a much stronger than expected jobs report at the end of last week.
“Powell maintained a relatively dovish tone, and markets took that as a green light to rally, but pretty much 24 hours later we got a stream of extremely hawkish Fed speak,” said Tony Sycamore, a strategist at IG.
“If rates go past that five, five-and-a-quarter percent range that the Fed has previously indicated, markets are definitely not priced for that – absolutely not.”
Money markets currently see a peak in the current rate cycle around 5.15 percent in July.
The two-year Treasury yield eased slightly to around 4.49 percent in Tokyo, after touching the highest since Jan. 6 at 4.514 percent overnight. The 10-year yield edged down to around 3.67 percent after bumping around 3.96 percent mid-week, also the highest since Jan. 6.
The U.S. dollar index, which measures the greenback against six peers including the euro and yen, ticked up slightly to 103.27, sticking to the middle of its range this week. It touched 103.96 on Tuesday for the first time since Jan. 6 as well.
Meanwhile, crude oil prices dipped on Friday but were headed for a weekly gain with the market continuing to seesaw between fears of a recession hitting the United States and hopes for strong fuel demand recovery in China, the world’s top oil importer.
Brent crude futures declined 35 cents, or 0.4 percent, to $84.15 a barrel, while U.S. West Texas Intermediate (WTI) crude futures slipped 41 cents, or 0.5 percent, to $77.65 a barrel.