30-6-2023 (SINGAPORE) Asian stocks eased on Friday as strong U.S. economic data pointed towards the possibility of the Federal Reserve keeping interest rates higher for longer, while the yen breached a psychologically important barrier amid intervention worries. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.21 per cent but was on course to eke out a gain of over 1 per cent in the first half of the year. Australia’s S&P/ASX 200 index lost 0.39 per cent, while Japan’s Nikkei fell by nearly 1 per cent, but was still the best performing Asian stock market with a 26 per cent gain in the first six months of the year.
China shares have been struggling, with investors cautious of the stuttering post-COVID-19 recovery as they wait for signs of strong stimulus. The country’s manufacturing activity contracted for a third straight month in June, albeit at a slower pace, according to an official factory survey released on Friday. China’s blue-chip CSI300 Index fell 0.14 per cent and the Shanghai Composite Index eased 0.11 per cent. Hong Kong’s Hang Seng Index slipped 0.28 per cent, on course to clock a decline of 5 per cent for the first half of the year.
Data through the week has painted a picture of a resilient U.S. economy that has eased some of the worries of an impending recession but has also stoked expectations that the Fed will stay on its hawkish path. The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to continued labor market strength. The Commerce Department also revealed that Gross Domestic Product increased at a 2.0 per cent annualized rate in the first quarter, higher than economists’ expectations.
Federal Reserve Chair Jerome Powell indicated that the U.S. central bank was likely to resume its monetary tightening campaign after a break earlier this month. The strong economic data sent Treasury yields higher, with the yield on 10-year Treasury notes reaching a three-month high of 3.868 per cent on Thursday. In Asian hours, it was at 3.840 per cent. The two-year U.S. Treasury yield was at 4.872 per cent; it had touched more than a three-month high of 4.892 per cent overnight.
Investor focus on Friday was on the U.S. Personal Consumption Expenditures (PCE) index reading, the Fed’s favored inflation gauge. In the Eurozone, inflation data for May was expected to provide cues to the European Central Bank’s next moves.
Japanese authorities are under pressure to combat a continued yen fall driven by market expectations that the Bank of Japan will keep interest rates ultra-low, even as other central banks tighten monetary policy to curb inflation. On Friday, the Japanese yen weakened to 145 per dollar for the first time since November as investors watched out for intervention from the Japanese authorities. In a fresh warning, Japanese Finance Minister Shunichi Suzuki said on Thursday the country will not rule out any options in responding to currency market moves that become excessive, adding that one-sided, unstable yen moves were undesirable. The dollar index, which measures the U.S. currency against six rivals, rose 0.029 per cent, with the euro down 0.01 per cent to $1.0863.
