Men walk past an electric board displaying Nikkei and other countries’ indexes outside a brokerage in Tokyo, Japan Jan 16, 2023. REUTERS/Kim Kyung-Hoon
SINGAPORE – Asian equities slipped on Friday, while the dollar hovered around six-week highs as economic data and hawkish comments from Federal Reserve officials revived fears that the U.S. central bank will stick to its monetary tightening path.
Data from U.S. Labor Department overnight showed monthly producer prices accelerated in January, while a separate report from the agency showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.
U.S. stock indexes ended Thursday sharply lower as the economic data from the week underscored a sticky inflation and an economy that remains relatively strong.
Tracking Wall Street, MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.68 lower and was set for its third straight week of losses. Japan’s Nikkei fell 0.47 percent, while Australia’s S&P/ASX 200 index declined 0.55 percent.
China shares slipped 0.18 percent while Hong Kong’s Hang Seng Index fell 0.09 percent.
“No matter how you cut it, inflation was hot,” said Tapas Strickland, head of market economics at National Australia Bank. “The latest data supports the Fed view of needing to continue to raise rates and hold them there higher for longer.”
The market is now pricing U.S. interest rates to peak at 5.28 percent in July and remain above 5 percent till the end of the year.
Two Fed officials said on Thursday the U.S. central bank likely should have lifted interest rates more than it did early this month, and warned that additional hikes in borrowing costs are essential to lower inflation back to desired levels.
“The incoming data have not changed my view that we will need to bring the fed funds rate above 5 percent and hold it there for some time,” Cleveland Fed President Loretta Mester said.
At its Jan. 31-Feb. 1 policy meeting, the Fed opted to moderate the pace of rate hikes and lifted its benchmark overnight interest rate by 25 basis points to the 4.5 percent-4.75 percent range after a series of jumbo rate increases last year.
But since then economic data has pointed to tight labour market and sticky inflation keeping the pressure on the central bank to remain on its tightening path.
“After the CPI (consumer price index) report this week brought back concerns on the pace at which inflation is cooling, January PPI (producer price index) also saw a hotter than expected print,” Saxo Markets strategists said.
They said both goods and services prices increased in January, raising doubts over the goods disinflation narrative and continues to support the thesis that services inflation is sticky.
The increasing expectations of the Fed hiking rates further has pushed U.S. Treasury yields higher, with the yield on 10-year Treasury notes up 3.7 basis points to 3.88 percent, highest since Dec. 30.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 4.2 basis points at 4.661 percent.
The dollar index, which measures U.S. currency against six major rivals, rose 0.182 percent to 104.30, a fresh six week high.
The euro was down 0.22 percent to $1.0650, its lowest since Jan. 9, Sterling was last trading at $1.1965, down 0.23 percent on the day
The yen weakened 0.33 percent to 134.37 per dollar on the day, having touched six-week low of 134.50 earlier in the session.
Elsewhere, U.S. crude fell 0.36 percent to $78.21 per barrel and Brent was at $84.81, down 0.39 percent on the day.