Asian stocks edged lower on Friday as investors assessed the near-term U.S. monetary policy direction following hints from Federal Reserve officials about potentially prolonging higher interest rates despite early signs of easing inflation.
Earlier this week, U.S. consumer price inflation showed a slowdown, initially prompting expectations of at least two rate cuts this year. However, optimism waned as subsequent labor market data indicated tight conditions, and Fed officials remained cautious about inflation pressures.
Traders have priced in a likelihood of 47 basis points in Fed rate cuts for the year, with a November rate cut fully anticipated. MSCI's broadest index of Asia-Pacific shares outside Japan dipped by 0.14%, having reached a two-year peak on Thursday. Despite this, it was poised to close the week 2.6% higher, marking a fourth consecutive week of gains.
Japan's Nikkei declined by 0.48%, while Chinese stocks saw modest gains, with the blue-chip index up 0.15% in early trading. Hong Kong's Hang Seng Index outperformed, rising by 0.77% to its highest level since August 2023.
"Following recent softening in U.S. data, this may mark the limit of the risk rally without major data releases in the upcoming week," commented Nicholas Chia, Asia macro strategist at Standard Chartered.
Despite favorable U.S. data this week, Fed policymakers have not signaled a shift in their views on the expected timing of rate cuts anticipated by investors to commence this year.
Federal Reserve Bank of New York President John Williams described monetary policy as "restrictive" and "in a good place," indicating no immediate need for changes.
Thursday's data indicated a decrease in new jobless claims in the U.S., suggesting ongoing tight labor market conditions despite cooling job growth.
In currency markets, the dollar was on track for its largest weekly decline against the euro in over two months. The euro strengthened approximately 1% against the dollar, trading at around US$1.08595. The yen weakened slightly to 155.80 per dollar in early trading, relinquishing some gains made after the subdued U.S. CPI report earlier in the week.
The yen has depreciated around 9.5% this year amid loose monetary policy from the Bank of Japan and higher U.S. interest rates, which have attracted capital to U.S. assets.
In commodities, oil prices climbed during Asian trading hours. Brent crude was set for its first weekly gain in three weeks, buoyed by improving global demand and easing inflation in the U.S., the world's largest oil consumer.
U.S. crude held steady around US$79.18 per barrel, while Brent rose 0.1% to US$83.35 per barrel.
Gold prices were last quoted at US$2,377.25 per ounce.
Paraphrasing text from "Reuters" all rights reserved by the original author.
