Stocks crumble as hopes fade for imminent Fed rate cut
Asian shares join the global selloff as hawkish comments from Fed officials cast a pall over hopes for a US rate cut next month; The still messy data calendar increased concerns and hit bonds, the dollar and even gold.
Japan’s Nikkei index lost 1.8 percent on Friday, Australia’s resource-heavy stocks lost 1.5 percent, and South Korea lost 2.3 percent.
China is due to release monthly activity figures later in the day after weak credit data triggered concerns among households and businesses about taking on more debt due to economic uncertainties.
Wall Street slumped overnight with big losses in Nvidia and other AI majors on valuation concerns, while Treasuries retreated as investors cut their expectations for a Fed rate cut in December to just 51 percent, down from 63 percent the day before.
The dollar could not rise due to high yields and lost value against the yen and the Swiss franc.
“The decline in assets was significant and there was little room to hide when looking at investable markets,” said Chris Weston, head of research at Pepperstone.
“With the U.S. government open to business, traders are now awaiting the Bureau of Labor Statistics (BLS) schedule for key economic data… So far positioning has largely been driven by Tier 2 data, which will need to be reconciled with the headline data that really drives the Fed’s decision-making.”
But the White House said October’s US unemployment rate may never be available, dashing hopes for a clearer view of the US economy any time soon. Reinforcing the pessimistic tone and citing concerns about higher inflation, a growing number of Fed officials gave cautious signals about further rate cuts overnight.
Alberto Musalem, who runs the St. Louis Fed Bank, said there was limited room for further expansion without being overly conciliatory, while Cleveland Fed President Beth Hammack said interest rate policy should remain restrictive to put downward pressure on inflation.
Minneapolis Fed President Neel Kashkari told Bloomberg he opposed a rate cut last month and remained undecided until December.
Treasuries fell overnight as investors pulled back on bets that the Fed would raise interest rates next month. While the yield on two-year Treasury bonds increased by 3 basis points overnight and remained at 3.597 percent, the yield on 10-year Treasury bonds increased by 1 basis point to 4.125 percent after increasing by 3 basis points overnight.
But the rise in yields failed to support the US dollar, which fell 0.2 per cent against major currencies overnight at 99.254, near a two-week low.
The yen got a much-needed respite and last traded at 154.7 per dollar; That was just a touch above the nine-month low of 155.05 per dollar. The Swiss franc gained 0.6 percent against the dollar.
But sterling lost 0.3 per cent to US$1.3153 ($A2.0155) on Friday after the Financial Times reported that Prime Minister Keir Starmer and finance minister Rachel Reeves had abandoned manifesto-busting plans to raise income tax rates.
Oil prices rose in early trading but are expected to decline for the third week in a row. US West Texas Intermediate crude rose 0.4 per cent to US$58.91 ($A90.27) but is down 1.4 per cent this week.
Spot gold prices rose 0.3 per cent to US$4,183 ($6,410) an ounce after losing 0.6 per cent overnight, ending a four-day winning streak. This fell well short of the record high of US$4,381 ($A6,713).
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