Asian stocks fell sharply on Friday, tracking the declines in tech stocks on Wall Street. This happened after US inflation was higher than expected, which reduced bets for the Federal Reserve to cut interest rates soon and frequently. US benchmark bond yields remained near the 4.3% level they reached on Thursday, which was the first time in a month following their biggest jump in three months.
Meanwhile, the dollar rose to its highest level since March 5 against a basket of major currencies. Crude oil slipped back after its overnight surge above $85 for the first time since November. It remained on track for a rally of nearly 4% this week. Bitcoin edged away from an all-time high reached on Thursday as risk sentiment took a hit. Futures markets cut the odds of a June policy easing to 60%, from about 67% late on Wednesday, according to LSEG’s rate probability app. For 2024, the market is now pricing in less than three rate cuts, down from three to four two weeks ago.
The biggest reaction was in the US Treasury bond market, with a pop in yields pulling the dollar along as well. The 10-year Treasury yield last stood around 4.28% on Friday, holding on to most of its more than 10 basis point jump from the previous session. The dollar index, which measures the currency against the euro, yen and four other peers, added 0.07% to 103.45, following a 0.58% rally on Thursday, its best day in more than a month. Kyle Rodda, senior markets analyst at Capital.com, said: “At the margins, price pressures are looking more stubborn, with the process of disinflation taking longer than hoped.” The direct impact on equities was muted, but the jump in long-term yields is “raising the spectre of a potential air pocket ahead for the tech-driven rally,” he said. US stock futures pointed marginally lower following a 0.29% decline in the S&P 500 on Thursday.
However, the impact of a big sell-off in chip-sector shares reverberated in Asian markets, weighing on stock indexes around the region. Hong Kong’s Hang Seng Index slid more than 2%, as did South Korea’s Kospi, which fell 1.6%. Mainland Chinese blue chips were likewise bruised and edged 0.6% lower. China’s central bank left a key policy rate unchanged while withdrawing cash from a medium-term policy loan operation on Friday. Japan’s Nikkei eased 0.33%. The Bank of Japan’s two-day policy meeting is ending on Tuesday of next week. Signs continue to build for an exit from ultra-easy stimulus. The government appeared to back a policy shift, with Finance Minister Shunichi Suzuki stating on Friday that the economy is no longer in deflation. However, he said earlier in the week that it was too soon to declare an end to the nation’s protracted spiral of falling prices. Jiji news agency reported on Thursday that the BOJ has started to make arrangements to end its negative interest rate policy at the gathering.
Sources recounted that the central bank will debate the end of negative rates if the preliminary survey on big firms’ wage talks, due on Friday, yields strong results. Japan’s 10-year bond yield rose to 0.795% for the first time in more than three months. Any yen strength was overpowered by the resurgent dollar, which gained 0.03% to 148.35 yen, continuing its rebound from a drop as low as 146.48 a week ago. The euro extended Thursday’s decline and reached a low of $1.08735, its lowest level in a week. Last Friday, it climbed as high as $1.0980, a two-month high. In cryptocurrencies, bitcoin was last 4.6% lower at $67,417, having hit a record high of $73,192.79 in the previous session.
Software firm MicroStrategy announced plans this week to raise capital through convertible bonds, offering to buy bitcoin for the second time in less than 10 days. Elsewhere, oil prices fell on Friday, following strong gains this week amid sharp declines in US crude and fuel inventories, drone strikes on Russian refineries and a rise in energy demand forecasts. Brent crude oil futures for May fell 18 cents, or 0.21%, to $85.24 a barrel. US West Texas Intermediate crude for April fell 17 cents, or 0.2%, to $81.10.