An unexpected rate hike by the Bank of Canada has heightened fears that U.S. rates could stay high for an extended period of time and that the Federal Reserve could remain hawkish at next week’s meeting. Asian stocks fell on Thursday. MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.48 percent, while Japan’s Nikkei Stock Average (.N225) fell 1 percent. Australia’s S&P/ASX200 index fell 0.29%. Euro stocks 50 futures were down 0.30%, German DAX futures were down 0.31% and FTSE futures were down 0.06%, with the gloomy mood expected to continue in Europe. Canada stunned markets on Wednesday by raising its overnight rate to 4.75%, the highest in 22 years, but traders expect another rate hike next month to cool an overheated economy and stubborn inflation. I expect. The Bank of Canada (BoC) has put a rate hike on hold since January to see the impact of the previous rate hike.
Australia also took action after its central bank surprised markets with a rate hike earlier this week. The Reserve Bank of Australia has since warned of further rate hikes to ease price pressures. Tapas Strickland, head of market economics at NAB, said the central bank’s actions showed the central bank was not over its rate-hiking cycle. “Next week’s U.S. consumer price index will be a factor in determining whether the Fed takes action in June or as widely reported.” Consumer inflation data on Tuesday is likely to show prices rising 0.30% in May. Markets are currently pricing in a 64% chance that the Fed will stay on hold next week, down from 78% a day earlier, according to the CME FedWatch Tool. Traders expect a 25 basis point hike in July.
Economists do not expect the Fed to raise rates at its June 13-14 meeting, but a clear minority expect at least one more rate hike this year, according to a Reuters poll. More than 90% of economists (78 out of 86) expected the Federal Funds rate to remain unchanged between 5.00% and 5.25% between June 2 and 7. Chinese stocks fell 0.12%, while Hong Kong’s Hang Seng Index fell 0.57%. Data on Wednesday showed China’s exports fell 7.5% from a year earlier in May, the biggest drop since January and well below analysts’ expectations of a 0.4% decline.
“Weak export data will prompt observers to seek new policy stimulus,” strategists at Saxo Markets said. Asian government bond yields remained stable in the early morning after rising overnight on the Bank of Canada’s move. The 10-year Treasury yield rose 1.1 basis points to 3.795% and the 30-year Treasury yield rose 0.5 basis points to 3.947%. Yields on two-year U.S. Treasuries, which typically move in line with rate expectations, rose 1.7 basis points to 4.567%. In the foreign exchange market, the dollar index, which shows the value of the US currency against the six major currencies, fell 0.038%, while the euro rose 0.09% to $1.0707.
The yen rose 0.22% to 139.80 to the dollar after revised data showed Japan’s economy grew faster than originally expected in January and March. The Canadian dollar rose 0.08% to 1.34, while the newly elected government is expected to ease stabilization measures after signaling a move toward more orthodox politics. , the Turkish lira hit a record low against the dollar. U.S. crude futures fell 0.22% to $72.37 a barrel on Monday, while Brent crude fell 0.25% to $76.76. Gold prices stabilized on Thursday after falling 1% in previous trading, with the spot gold price rising 0.3% to $1,945.89 an ounce.