Asia Stocks Fall In Early Trade After Fed Pushback

(Bloomberg) -- Asian stocks declined after US shares ended a six-day rally as Federal Reserve officials pushed back against bets of aggressive interest rate cuts next year. (Bloomberg) -- Asian stocks declined after US shares ended a six-day rally as Federal Reserve officials pushed back against bets of aggressive interest rate cuts next year. Equities benchmarks in Australia, Japan and Hong Kong fell. Mainland Chinese shares fluctuated after opening lower. US contracts edged higher. The dollar and Treasury yields were mixed, after New York Fed President John Williams said it’s too early for officials to begin thinking about lowering borrowing costs. The pushback may start to scupper the ‘everything rally’ after traders took previous Fed signals as a green light to ratchet up bets on rate cuts next year, helping US and Asian shares to their biggest weekly gains in a month. Swaps traders trimmed bets on cuts in 2024 to just under five from six before the latest Fed rhetoric, according to data compiled by Bloomberg. “The S&P 500 has rallied more than 10% in less than two months so some digestion of the rally is needed,” Tom Essaye, the founder of The Sevens Report newsletter, wrote. That “likely will come in the near term, especially if Fed officials rhetorically push back on the market’s enthusiasm in the next week or two.” Central bankers from the US to Europe and Canada have already begun their battle with traders. Atlanta Fed President Raphael Bostic, who votes on monetary policy next year, told Reuters that he expects two rate cuts in 2024 but not starting until the third quarter. Separately, Chicago Fed President Austan Goolsbee said Sunday its an overstatement to consider rate cuts until officials are convinced inflation is on a path lower to its target. Bank of Canada Governor Tiff Macklem shared similar sentiment. In Europe, European Central Bank Governing Council Joachim Nagel said Friday it’s too early to be considering rate cuts, while fellow member Madis Muller said that markets are getting ahead of themselves in betting on policy easing in the first half of next year. ECB President Christine Lagarde said the bank had not discussed rate cuts at all. “It was the week before Christmas and all was quiet in financial markets... until the central bankers started talking and investors reverted from the notion that interest rates will have to stay ‘higher for longer’,” Bancorp wrote in a note to clients. Read More: Fed’s Goolsbee Says Too Early to Declare Victory Over Inflation The Final Holdout Attention will soon shift to Japan with the nation’s central bank beginning a two-day policy meeting Monday. While speculation has grown the Bank of Japan will soon end the world’s last negative-rate regime, economists see April as the most likely timing for a change, with around 15% expecting Ueda to pull the plug on negative rates in January, according to a Bloomberg survey of more than 50 economists. “The BOJ has little need to rush into making policy changes,” Societe General economists led by Wei Yao wrote in a note. “But markets will be watching for any sign the board is willing to end negative rates or yield curve control.” Read More: BOJ Is Said to See Little Need to End Minus Rate Next Week Markets will also digest a cabinet reshuffle by Japanese Prime Minister Fumio Kishida after he ousted four lawmakers accused of concealing income generated from fund-raising events. The scandal has rocked the ruling Liberal Democratic Party and fueled speculation it may consider changing its leader before his term ends in September. Elsewhere this week, the Reserve Bank of Australia will release its minutes from the December policy meeting while Bank Indonesia will make its final policy decision of the year. Traders will also be keeping a close eye on developments in the Middle East as Israel pushes back against calls for a ceasefire in Gaza. In commodities, gold was steady while oil rose in early Asian trading, extending last week’s rise as major shipping lines suspended transit through the Red Sea, following escalating attacks on merchant ships. Chile rejected the second proposal for a new constitution in as many years at the weekend, highlighting the failure of the nation’s political system to channel social demands into a new set of basic laws. The result, broadly in line with recent polls, means that the current charter dating from the Augusto Pinochet dictatorship will remain in place. Mahjabeen Zaman, head of foreign exchange research at ANZ Group Holdings, discusses the outlook for the dollar, the yen and central banks’ policies. She speaks on “BloombergDaybreak: Australia.” (some technical issues during the interview) Key events this week: ECB holds biennial conference on fiscal policy and EMU governance, Monday Pro-democracy media tycoon Jimmy Lai heads to court in Hong Kong, Monday Nasdaq 100 index annual reconstitution, Monday RBA Dec. policy meeting minutes, Tuesday Bank of Japan decision, Tuesday Canada inflation, Tuesday Eurozone inflation, Tuesday Atlanta Fed President Raphael Bostic speaks, Tuesday New Zealand issues half-year economic and fiscal update, Wednesday China loan prime rates, Wednesday UK inflation, Wednesday Bank Indonesia rate decision, Thursday US GDP, Thursday Nike earnings, Thursday Japan inflation, Friday UK GDP, Friday Some of the main moves in markets: Stocks S&P 500 futures rose 0.2% as of 10:40 a.m. Tokyo time. The S&P 500 was little changed on Friday Japan’s Topix fell 1.5% Australia’s S&P/ASX 200 fell 0.3% Hong Kong’s Hang Seng fell 1% The Shanghai Composite fell 0.1% Currencies The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.0896 The Japanese yen fell 0.2% to 142.37 per dollar The offshore yuan was little changed at 7.1344 per dollar The Australian dollar was little changed at $0.6694 Bonds The yield on 10-year Treasuries advanced one basis point to 3.93% Japan’s 10-year yield was little changed at 0.695% Australia’s 10-year yield declined five basis points to 4.09% Cryptocurrencies Bitcoin fell 2.3% to $40,936.36 Ether fell 2.8% to $2,175.64 Commodities West Texas Intermediate crude rose 0.3% to $71.63 a barrel Spot gold was little changed This story was produced with the assistance of Bloomberg Automation. --With assistance from Michael G. Wilson. More stories like this are available on bloomberg.com ©2023 Bloomberg L.P.