Asian Stocks Retreat; Yen Falls as BOJ Stands Pat: Markets Wrap

(Bloomberg) — Asian stocks slid on Thursday after the Federal Reserve forecast fewer interest-rate cuts next year. The yen dropped as the Bank of Japan refrained from raising borrowing costs.

Equity benchmarks in Japan, Australia, South Korea and China declined, helping drag a gauge of regional equities down by as much as 1.7%. The losses mirrored a slump in US shares in the previous session, with the S&P 500 suffering its biggest loss since 2001 for a Fed decision day. 

The yen weakened past the key level of 155 versus the dollar following the BOJ decision, with traders awaiting clues about the rate outlook from Governor Kazuo Ueda’s news conference later Thursday. The move comes after the Fed lowered rates by 25 basis points on Wednesday as expected, with the median policymaker now seeing just a half-percentage point of reductions next year, half of what was expected in September. 

“There is an expectation that he will provide stronger hints of a January hike,” said Alvin Tan, head of Asia FX strategy at Royal Bank of Canada in Singapore, referring to Ueda. If he is non-committal, “then USD/JPY upside has more legs.”

The 155 level for the dollar-yen pair is closely watched by strategists, who see a slide to this mark as a potential trigger for verbal intervention from Japanese authorities, and added pressure on the BOJ to hike rates. 

Read: Yen’s Outlook Worsens as BOJ Skips Rate Hike, Strategists Say

In the broader foreign-exchange market, the prospect of fewer US rate cuts supported the dollar and sent Asian currencies tumbling. India’s rupee slid to a record low while the South Korean won dropped to its weakest level in more than 15 years. Treasury yields edged higher after rising across the curve in the prior session. 

Back in the US, the last time the S&P 500 saw losses of the magnitude on Fed’s decision day was on Sept. 17, 2001, when the index fell nearly 5%. It dropped 12% on March 16, 2020, a day after the Fed’s emergency weekend meeting during the pandemic.

Fed Chair Jerome Powell said the central bank would be more cautious as it considers further adjustments to the policy rate, noting the Fed is committed to reaching its 2% inflation target. “We need to see progress on inflation,” he said. “We moved quickly to get to here but moving forward we are moving slower.”

Fed Outlook

Whitney Watson of Goldman Sachs Asset Management expects the Fed to skip a rate cut in January before resuming on its easing path in March.

“While the Fed opted to round out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing,” said Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions at the firm.

Over in China, authorities ramped up support for the currency via its daily reference rate after the Fed’s caution over future rate cuts sent the offshore yuan to a fresh one-year low.

Contemporary Amperex Technology Co., the world’s top electric-vehicle battery maker, is considering a second listing in Hong Kong that could raise at least $5 billion, according to people familiar with the matter. Shares of Asian memory chipmakers and their suppliers fell after Micron Technology offered disappointing revenue forecast.

In the US, President-elect Donald Trump said he opposed a proposed funding bill and threatened to oust fellow Republicans if they accepted legislation that didn’t include his demands, increasing the likelihood of a government shutdown later this week. House Majority Leader Steve Scalise said the stopgap funding measure released Tuesday was dead.

The Fed’s Wednesday cut precedes a busy run of central bank announcements from around the world. Rate decisions are expected Thursday in the Philippines, Taiwan, the UK, Norway, Sweden and Mexico. China’s one-year Medium-Term Lending Facility rate may be announced at any time through Dec. 24.

In commodities, oil fell as expectations for fewer Fed rate cuts boosted the dollar. Gold staged a partial recovery in Asian trading after tumbling more than 2% in the previous session. Bitcoin sank below $100,000 as part of a wider retreat in speculative investments amid the US rate outlook.

Key events this week: 

• Japan rate decision, Thursday
• UK BOE rate decision
• US revised GDP, Thursday
• Japan CPI, Friday
• China loan prime rates, Friday
• Eurozone consumer confidence, Friday
• US personal income, spending & PCE inflation, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 1:27 p.m. Tokyo time
• Nikkei 225 futures (OSE) fell 1.1%
• Japan’s Topix fell 0.2%
• Australia’s S&P/ASX 200 fell 1.9%
• Hong Kong’s Hang Seng fell 1%
• The Shanghai Composite fell 0.7%
• Euro Stoxx 50 futures fell 1.5%
• Nasdaq 100 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.3% to $1.0380
• The Japanese yen fell 0.2% to 155.17 per dollar
• The offshore yuan fell 0.2% to 7.3101 per dollar
• The Australian dollar rose 0.1% to $0.6227

Cryptocurrencies

• Bitcoin was little changed at $100,925.95
• Ether fell 0.8% to $3,661.28

Bonds

• The yield on 10-year Treasuries was little changed at 4.52%
• Australia’s 10-year yield advanced 12 basis points to 4.40%

Commodities

• West Texas Intermediate crude fell 0.6% to $70.19 a barrel
• Spot gold rose 1% to $2,610.76 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson, Mia Glass and Winnie Hsu.

©2024 Bloomberg L.P.