Asian stocks fall, dollar gains after Powell’s aggressive comments

SINGAPORE, March 8 (Reuters) – Asian stocks fell sharply on Wednesday, while the dollar rose after aggressive comments from Federal Reserve Chairman Jerome Powell that raised the possibility that the US central bank.

The Fed may need to raise interest rates more than expected in response to recent strong data, powell said on the first day of his semiannual two-day monetary policy testimony before Congress.

Powell’s hawkish comments sent US stocks lower sharply, and risk-off sentiment continues in Asian trade.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) it was 1.72% lower and was on track for its biggest one-day percentage drop in a month. Australia S&P/ASX 200 Index (.AXJO) fell almost 1%, while Japan’s Nikkei (.N225) it was the only Asian stock index to gain, up 0.3%.

chinese stocks (.SSEC) fell 0.42%, while Hong Kong’s Hang Seng Index (.HSI) it fell 2.5%, on track for its worst day since late January.

The bearish mood will spill over into Europe, with futures indicating a lower open. Eurostoxx 50 futures were down 0.19%, German DAX futures were down 0.27% and FTSE futures were down 0.27%.

After a series of huge hikes last year, the Fed raised rates by 25 basis points in its last two meetings.

However, strong economic data since the beginning of this year has stoked fears that the US central bank could raise rates again, which Powell acknowledged.

“If the totality of the data indicates that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said.

Markets are now pricing a nearly 70% chance of a 50 basis point rate hike at the Fed’s March 21-22 policy meeting, according to CME’s FedWatch tool, versus 30% for A day ago.

“Powell has essentially opened the door for a 50 basis point hike,” said Chris Weston, head of research at Pepperstone.

“He’s given the Fed the option, but one suspects he wouldn’t be willing to do that, as it doesn’t look good to change tack when you’ve just gone down to 25 basis point increments.”

Short-term Treasury yields continued their climb on Wednesday, with the two-year US Treasury yield, which usually moves in step with interest rate expectations, rising 6.7 basis points to 5.078%. , its highest level since mid-2007.

A closely watched portion of the US Treasury yield curve measuring the gap between the two-year and 10-year Treasury yields, seen as a proxy for economic expectations, was -107.6 basis points, its lowest level since August 1981, according to Refinitiv data. . Such an investment is seen as a reliable indicator of recession.

“Given what we already knew, Powell’s aggressive comments should not have come as a surprise, but clearly the market was not ready,” said Rodrigo Catril, senior currency strategist at National Australia Bank, adding that recent data indicated that the economy The US began 2023 on a much stronger footing than most had anticipated.

The focus will now be on Friday’s US payrolls data and next week’s inflation numbers which will dictate further moves from the Federal Reserve.

Citi strategists said even expected payrolls and inflation data could keep the possibility of a 50 basis point rise high. “Failure to deliver a 50bp increase could mean a large useless easing of financial conditions.”

In the foreign exchange market, the dollar continued its charge, touching maximums of three months. The dollar index, which measures the US currency against six of its main rivals, was last at 105.81, up 0.151%, after rising 1.3% on Tuesday.

The euro fell 0.16% to $1.053, near its two-month low. Sterling last traded at $1.1814, down 0.11% on the day, after hitting a more than three-month low of $1.1812 earlier in the session.

The dollar rose 0.42% against the yen to 137.74, the highest level since December 15, ahead of the Bank of Japan meeting on Thursday and Friday, when the central bank it is expected to stick to its ultra-lax monetary policy.

US crude rose 0.06% to $77.63 a barrel and Brent to $83.51, up 0.26%.

Reporting by Ankur Banerjee; Edited by Lincoln Festival.

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