Stocks set to snap nine-week win streak on Fed rethink; yen slides

A man is reflected on an electric stock quotation board outside a brokerage in Tokyo, Japan April 18, 2023. REUTERS/Issei Kato/File photo

TOKYO  – Asian stocks wobbled on Friday, keeping global equities on track to snap a nine-week winning streak, while the dollar was poised for its strongest weekly advance since mid-May as bets on aggressive Federal Reserve rate cuts were rolled back.

The dollar’s gains were particularly pronounced against the yen, and it surged beyond the closely watched 145 mark on the day, buoyed by long-term Treasury yields above 4 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan sagged 0.49 percent as of 0652 GMT, with Hong Kong’s Hang Seng slipping 0.8 percent and mainland Chinese blue chips falling 0.62 percent.

The MSCI world index was about flat so far on the day, but heading for a 1.78-percent decline this week.

“A weak opening to equity markets in 2024 suggests that investors are experiencing a hangover after December’s exuberance, waking up to the reality that the optimistic upturn may have been too much too soon,” said Lewis Grant, senior portfolio manager for global equities at Federated Hermes Limited.

READ: Asian shares slip, echoing Wall Street’s weak start to 2024

“Macro sensitivity remains at the forefront of investors’ minds,” he said. “Uncertainty remains, and much will be riding on the first few economic releases of 2024.”

The latest catalyst for a paring of Fed rate-cut bets came from more resilient U.S. labor market data on Thursday, putting less pressure on the central bank to race to ease policy.

Fed officials have sounded more balanced on the risks in recent comments, with Richmond Fed President Thomas Barkin, for one, saying this week that the central bank is “making real progress” towards taming inflation, but “the potential for additional rate hikes remains on the table”.

Traders now see a little better than 2-in-3 odds that the Fed cuts rates by March, down from a 71-percent probability a week earlier, according to the CME Group’s Fedwatch tool.

The release of monthly U.S. payrolls figures looms large later in the day.

Overnight, Wall Street’s S&P 500 retreated 0.34 percent, taking its losses this week to 1.7 percent, setting up its first weekly decline since late October. Futures pointed to a further 0.11 percent drop at the reopen.

READ: Wall Street ends mixed, and yields rise after solid data on the economy

Pan-European STOXX 50 futures sagged 0.69 percent and U.K. FTSE futures shed 0.63 percent.

Japan’s Nikkei was something of an outlier, bouncing 0.27 percent as exporters got a boost from the yen’s slide. The dollar last traded 0.42 percent stronger at 145.25 yen, and touched 145.365 for the first time since Dec. 13.

A deadly New Year’s Day quake on the Japan Sea coast has forced the last wagers for a hawkish Bank of Japan policy shift at this month’s meeting off the table.

“The Bank of Japan’s continued reluctance to give a timetable for normalization is running up against the Fed’s pushback on the aggressive rate-cut path the market was pricing in a week ago,” said James Kniveton, senior corporate forex dealer at Convera.

“That has seen the dollar climb against the yen as the interest rate differentials reassert themselves.”

The U.S. dollar index, which measures the currency against a basket of six major peers including the yen, added 0.18 percent to 102.61, pushing back towards Wednesday’s three-week high of 102.73. For the week, it is up 1.22 percent.

The 10-year Treasury yield rose as high as 4.023 percent, and was last as 4.0135 percent, up about 15.5 basis points over the week.

Meanwhile, gold was about flat at $2,043 per ounce, on track to snap a three-week winning streak with a 0.91 percent slide so far in 2024.

Oil ticked higher following declines on Thursday, when massive weekly gasoline and distillate stock builds overshadowed a larger-than-expected crude stock draw.

Brent crude futures were up 0.55 percent at $78.02 per barrel, after settling down 0.8 percent overnight. U.S. West Texas Intermediate crude futures added 0.72 percent to $72.72 on Friday following a 0.7 percent decline in the previous session.

For the week, Brent is up 1.18 percent, while WTI has gained 1.38 percent.