- S&P 500 futures rise slightly after decline, euro futures ease
- Fed’s Powell says he’s far from stopping on hikes
- The dollar cuts its gains, after rebounding with Treasury yields
SYDNEY, Nov 3 (Reuters) – Asian stocks fell on Thursday after the U.S. Federal Reserve changed the outlook for tightening from short and strong to long and high, ending any hint of a near-term pause.
Investors were initially pleased that the Fed had at least opened the door to a slower pace of hikes after raising interest rates by 75 basis points to 3.75-4.0%, noting that monetary policy had acted with a lag.
But Chairman Jerome Powell spoiled the mood, saying it was “very premature” to think about pausing and the spike in rates would likely be higher than expected.
“The Fed is now more comfortable with lower rate increases for a longer period than larger increases now,” said NatWest Markets analyst Brian Daingerfield.
“The crunch cycle is now officially a marathon, not a sprint.”
Futures were now split on whether the Fed would move 50 or 75 basis points in December, and pushed the peak in rates to 5.0-5.25% likely by May. They also imply little chance of a rate cut until December 2023.
“Powell’s comments reinforced our expectation that the December dot chart will show a higher median projection of the peak funds rate and that the FOMC will eventually rise beyond February next year,” the authors wrote. Goldman Sachs analysts.
“We consider the risks to our peak funds rate forecast of 4.75-5% to be on the upside.”
All of this was not what the stock markets wanted to hear, and Wall Street fell sharply after Powell’s comments. Early Thursday, S&P 500 futures edged up 0.1%, while Nasdaq futures added 0.2%.
EUROSTOXX 50 futures followed the move overnight and fell 0.8%, while FTSE futures lost 0.6%.
MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) lost 1.5%, with South Korea (.KS11) down 0.6%.
The Japanese Nikkei (.N225) was closed for a holiday, but futures were trading about 300 points below Wednesday’s cash close.
China’s blue chips (.CSI300) fell 0.7% after a survey of the services sector showed activity contracted due to COVID-19 restrictions, with the Caixin PMI falling to 48.4. Read more
THE BOE ENTERS THE STAGE
Two-year Treasury yields climbed to 4.63% as the curve flattened, with the spread to 10-year notes near its most inverted since the turn of the century.
Attention now shifts to the US ISM services survey later Thursday and Friday’s payrolls report, where any upside surprises will likely bolster the Fed’s hawkish outlook.
The Bank of England will also take center stage. The market is fully priced for a 75 basis point rate hike to its highest level since late 2008 at 3.0%.
“There will be interest in the BoE’s new CPI and GDP forecasts, with the latter likely to show a deeper and more prolonged recession in 2023 and 2024,” said Ray Attrill, head of FX strategy. at NAB.
A bleak outlook could put more pressure on the pound, which was pinned at $1.1415 after pulling back from an overnight high of $1.1564.
The US dollar saw a global bid following Powell’s hawkish take, before running into some profit-taking in Asia. The Dollar Index settled at 111.840 after an overnight rebound from a low of 110.400.
The euro was a fraction firmer at $0.9810, after falling from a high of $0.9976 overnight. The dollar lost some of its gains against the yen to settle at 147.24, but the latter was still up from Wednesday’s low at 145.68.
The rebound in the dollar and yields was a drag on gold, which was stuck at $1,637 an ounce after hitting $1,669 at one point overnight.
Oil prices also didn’t appreciate the dollar’s rally with Brent down 46 cents to $95.70 a barrel, while U.S. crude fell 64 cents to $89.36.
Good news for bread lovers, wheat futures fell overnight after Russia announced it would resume participation in a grain export deal from war-torn Ukraine.
Reporting by Wayne Cole; Editing by Lincoln Feast and Ana Nicolaci da Costa
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