Higher-than-expected U.S. inflation has dealt a blow to hopes for a June rate cut, forcing traders to reassess their monetary policy outlook and warning that the next move could even be a rate hike. As a result, Asian markets reversed on Thursday.
The losses followed a sell-off on Wall Street and the dollar hit a 34-year high against the yen, fueling speculation that Japanese authorities might step in to support the struggling currency.
Figures showing the consumer price index rose 0.4% month-over-month and 3.5% year-on-year, both above consensus for the third consecutive month, suggest that observers are concerned that the rise is more than a flash in the pan. It warns that this may indicate a future trend.
The announcement also comes amid other signals that the world's No. 1 economy remains in abysmal health, even though borrowing costs are at a 20-year high and inflation is well above target. It's against the backdrop of data — recently, employment statistics that have shattered predictions.
The results will give Fed officials more thought ahead of their May policy meeting, with recent guidance for three rate cuts this year now in doubt.
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Investors were optimistic at the start of the year that the central bank would cut interest rates six times in 2024, the first in March, but now it is aiming for up to two cuts, with a June cut likely. is fading.
But some people don't have high expectations. “We remain firmly of the view that the Fed will not cut rates in 2024,” said Torsten Slok of Apollo Global Management.
Former Treasury Secretary Lawrence Summers also said traders need to “take seriously the possibility that the next move in interest rates will be upward rather than downward.”
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Still, minutes from the Fed's most recent meeting showed that while policymakers are concerned about recent numbers, rate cuts are still expected this year.
“Some participants noted that the recent increase in inflation was relatively broad-based and therefore should not be dismissed as a mere statistical anomaly,” the Fed said in a statement.
“However, a few participants noted that residual seasonality may have affected inflation rates at the beginning of the year.”
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And Finalt's Neil Wilson says, “Despite the hot numbers, there are many reasons the Fed could cut rates in June…But if the market veers too far out of step, the Fed could… We may be forced to wait a little longer,” he added.
The disappointing data sent all three major Wall Street indexes into the red, with Asia also seeing sharp declines in Hong Kong, Tokyo, Sydney, Seoul, Singapore, Wellington, Taipei and Manila.
“The fallout from stronger-than-expected US inflation expectations will be felt across regional equity markets (Thursday),” IG Australia's Tony Sycamore said.
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“Weakness in major Asian currencies, including the yen and won, will provide a downside cushion and support exporters.”
Investors were paying attention to developments in Tokyo as the U.S. consumer price index (CPI) showed the dollar soaring to 153.24 yen, the highest since 1990.
Tokyo authorities said they would keep options open regarding support for the troops.
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But while top currency official Masato Kanda blamed speculators for the dollar-yen fluctuations, analysts said recent movements were more related to U.S. statistics.
“This is clearly a move in the U.S. dollar, and Japanese officials can't really dispute that speculators are attacking the yen,” said Peter Vassallo of BNP Paribas Asset Management.
Tokyo – Nikkei Stock Average: down 0.5% to 39,383.73 (break)
Hong Kong Hang Seng Index: down 1.0% to 16,969.91
Shanghai – Overall: up 0.4% to 3,039.81
Dollar/JPY: down to 152.80 yen from Wednesday's 152.96 yen
EUR/USD: down from $1.0747 to $1.0745
GBP/USD: up from $1.2543 to $1.2545
EUR/GBP: down from 85.67p to 85.65p
West Texas Intermediate: up 0.1% to $86.30 per barrel
Brent crude: up 0.1% to $90.60 per barrel
New York – Dow: down 1.1% to 38,461.51 (close)
London – FTSE 100: up 0.3% to 7,961.21 (close)
Dan/Sun