Asian stocks softened after Powell’s testimony came as no surprise

By Ankur Banerjee

SINGAPORE (Reuters) – Asian stocks made a tentative start on Thursday after Federal Reserve Chairman Jerome Powell stuck to his recent hawkish tone as investors assess the future trajectory of Fed rate policy. .

MSCI’s broadest index of Asia-Pacific stocks outside Japan was slightly lower at 522.93. The index is down more than 2% for the week and is about to snap its three-week winning run.

The Australian S&P/ASX 200 index lost 1.17%, while the Japanese Nikkei lost 0.25%. Stock markets in China and Hong Kong are closed for a public holiday.

Last week, the Fed held its benchmark interest rate steady between 5% and 5.25%, but officials predict rates will need to rise another half a percentage point by the end of the month. year to control inflation.

Markets remain skeptical, however, expecting a 25 basis point hike next month, according to CME tool FedWatch, and no more thereafter.

Powell, in his remarks to lawmakers in Washington, said the outlook for two more 25 basis point rate hikes is “a pretty good guess” of where the central bank will go if the economy continues in its current direction. .

While his remarks were eagerly awaited by investors, they offered no real surprise.

Kevin Cummins, chief economist at NatWest Markets, said Powell’s testimony shed no new light on Fed thinking or the likely future path of monetary policy, adding that his tone was very similar to that of last week’s press conference and that he was leaning mostly toward the hawk.

“It’s clear that the FOMC wants the market to understand that a hike will be on the table for debate at the next meeting. The Fed’s data-dependent approach in this tightening cycle suggests that future data releases could change expectations.”

Atlanta Federal Reserve Chairman Raphael Bostic said on Wednesday that the Fed should not raise rates any further or it would risk “unnecessarily” undermining the strength of the U.S. economy.

The comments highlight the growing debate at the central bank over when and if the central bank should increase further.

Investors’ attention will shift to the Bank of England later today with a widely expected hike and the only controversy is how big the hike will be after inflation data becomes more warmer than expected on Wednesday.

Economists polled by Reuters last week were unanimous that the BoE would raise rates to 4.75%, their highest since 2008, from 4.5%, but inflation data pushed financial markets to predict almost 50% chance that the BoE opts for a larger move. and raise rates by half a percentage point.

“While worries from other central banks are now easing more slowly than expected, the UK is still experiencing an acceleration,” said Taylor Nugent, an economist at National Australia Bank, referring to runaway inflation in the UK. United, which held steady at 8.7% in May.

“The BoE’s conditional guidance puts the burden of proof on the data showing more persistent inflationary pressures to keep raising the Bank Rate. Combined with the payroll data last week, they got that in spades. “

The pound was last at $1.2769, up 0.01% on the day, closing in on a one-year high of $1.2849 hit last week.

The euro rose 0.06% to $1.0991, after hitting a one-month high of $1.09925 earlier in the session. The Japanese yen strengthened 0.11% to 141.70 per dollar.

Markets will also await a policy decision from Turkey’s central bank, with a shift in course and a sharp rate hike widely expected.

The Turkish lira has fallen to record lows since last month’s election and last hit 23.56 to the dollar.

U.S. crude fell 0.07% to $72.48 a barrel and Brent to $77.06, down 0.08% on the day. [O/R]

(Edited by Lincoln Feast)

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