By Ankur Banerjee
SINGAPORE (Reuters) – Asian stocks inched lower on Thursday, while the dollar clung to overnight gains in cautious trading as U.S. Federal Reserve policymakers reiterated their commitment to reining in inflation despite signs of mounting economic headwinds.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.16% lower, set for a third straight day of losses. Japan’s Nikkei was up 0.27%, while Australia’s S&P/ASX 200 index was 0.13% higher.
Futures indicated Europe was set for muted open, with Eurostoxx 50 futures up 0.09%, German DAX futures down 0.02% and FTSE futures 0.04% higher.
E-mini futures for the S&P 500 fell 0.18%, while Nasdaq futures slid 0.33%. Shares of Tesla Inc slid 6% in after-hours trading after the electric vehicle maker posted its lowest quarterly gross margin in two years.
Elon Musk doubled down on the price war he started at the end of last year, saying Tesla would prioritise sales growth ahead of profit margins in a weak economy.
Traders are bracing for meetings from central banks in the next few weeks as easing worries over the banking sector brings inflation and monetary policy back into focus.
“Global central banks’ narrow focus on combating inflation has gotten more complicated as they are now faced with the added task of maintaining financial stability,” said Thomas Poullaouec, head of multi-asset solutions APAC at T. Rowe Price.
A Reuters poll of economists showed the Fed is likely to deliver a final 25-basis-point rate increase in May and then hold rates steady for the rest of the year. Markets are pricing in an 83% chance of the Fed hiking by 25 basis points, the CME FedWatch tool showed.
Federal Reserve Bank
The hawkish rhetoric from Fed speakers continued with Federal Reserve Bank of New York President John Williams saying that the inflation rate is still at problematic levels and that the U.S. central bank will act to lower it.
More Fed speakers are scheduled to give commentary over the rest of the week, before the officials enter a blackout period on April 22 ahead of the central bank’s May 2-3 meeting.
U.S. economic activity was little changed in recent weeks as employment growth moderated somewhat and price increases appeared to slow, a Fed report showed on Wednesday.
The central bank’s latest read on the state of the economy provides a snapshot of business, bank and working conditions in the aftermath of the mid-March failure of two large regional banks that shook confidence in the U.S. financial sector.
ING economist Rob Carnell said the report from the Fed was “quite disappointing news because it suggested that the U.S. economy was stalling” and could raise worries over a recession.
“I think we could be looking at yields coming down across the board could be looking at the dollar beginning to weaken again.”
Benchmark 10-year yields eased to 3.591% in Asian hours after scaling a four-week peak of 3.639% on Wednesday.
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The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, is down 2.3 basis points at 4.242%, having hit 4.286% on Wednesday, the highest since March 15.
Chinese stocks fell on Thursday, as sentiment was soured by fresh data this week that highlighted an uneven economic recovery after the country reopened this year. China’s blue-chip CSI 300 Index was down 0.64%, while the Shanghai Composite Index eased 0.69%. Hong Kong’s Hang Seng index was 0.19% higher.
In currency markets, the U.S. dollar index gave up 0.029%, with the euro tacking on 0.02% to $1.0956.
The yen weakened 0.05% to 134.78 per dollar, while the sterling was last trading at $1.2432, down 0.05%.
Data on Wednesday showed Britain has the highest inflation in Western Europe, bolstering expectations that the Bank of England will raise interest rates at its meeting in May.
Elsewhere, Australia’s central bank will get a new specialist board to manage monetary policy that will be chaired by the governor but has independent expert members with more power over the setting of interest rates.
In oil markets, U.S. crude fell 0.99% to $78.38 per barrel and Brent was at $82.37, down 0.9% on the day.