1/4/2024

Asian stocks fall amid Fed minutes

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Key points:

  • Asian shares fell on Thursday, with the dollar nearing a three-week high.
  • Minutes from the Federal Reserve’s latest meeting provide few clues about when U.S. rate cuts might begin.
  • In Asia, Chinese shares remain under pressure as uncertainty over the recovery of the world’s second-largest economy keeps investors at bay.

Asian markets tumbled on Thursday, dragged down by the dollar’s ascent to a three-week high and the Federal Reserve’s meeting minutes that failed to shed much light on the timing of potential US rate cuts.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.17%, extending its three-day losing streak to start the year. Japan’s benchmark Nikkei (.N225) opened the new year on a disappointing note, shedding 0.5%.

Chinese stocks continued to face headwinds amid lingering uncertainties about the country’s economic recovery. The blue-chip CSI 300 index (.CSI300) retreated 1.31%, while Hong Kong’s Hang Seng index (.HSI) followed suit, declining 0.70%.

A private-sector survey on Thursday provided a glimmer of hope, revealing that China’s service sector activity expanded at its fastest pace in five months in December, driven by robust new business growth. This contrasting view from an official survey that showed a sub-index of service sector activity contracting again at the end of 2023 highlights the mixed signals emanating from China’s economy.

Fed minutes results

The Federal Reserve’s December 2023 meeting minutes revealed a growing consensus among policymakers that inflation is stabilizing but also highlighted concerns about the potential harm that “excessively tight” monetary policy could inflict on the economy.

The minutes, released on Wednesday, prompted a shift in market expectations, with investors now pricing in a 70% probability of a 25-basis-point rate cut by the Fed in March, up from 90% the previous week.

Despite this change, market participants have slightly reduced their overall rate cut expectations for 2024, with futures prices indicating a potential decline of less than 150 basis points, down from 160 basis points the previous week.

Goldman Sachs analysts, however, maintain their forecast of a first rate cut in March and a total of five rate reductions this year.

The focus now shifts to Friday’s highly anticipated US nonfarm payrolls report, which will provide valuable insights into the labor market, which has shown signs of weakening. The Labor Department reported that the number of job openings in the US decreased by 62,000 to 8.79 million in November, marking the third consecutive month of decline.

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