Asian growth stocks and currencies are likely to come under pressure Thursday following hawkish Federal Reserve commentary that indicates policy will remain restrictive for longer, according to fund managers and strategists.
(Bloomberg) — Asian growth stocks and currencies are likely to come under pressure Thursday following hawkish Federal Reserve commentary that indicates policy will remain restrictive for longer, according to fund managers and strategists.
Fed policy makers held their benchmark rate unchanged but kept the door open for another hike this year in comments that dragged down US stocks and pushed Treasury yields higher. Those moves are set to reverberate across Asia and heighten the focus on Friday’s Bank of Japan meeting, according to commentary from the region.
Here is selection of comments made to Bloomberg:
John Vail, chief global strategist at Nikko Asset Management Co. in Tokyo:
“The dot plot was more hawkish than expected, with Fed Fund futures’ implied December 2024 rate up 13 basis points, about half of a hike, just before an odd move right on the close. This is a moderately negative factor for Japan and other Asian markets, with Hong Kong’s sensitivity relatively high to such.”
“The yen weakened only moderately, as despite Janet Yellen’s commentary on Tuesday, Japan’s Ministry of Finance is likely to intervene in large fashion at 150 per dollar because it is hard to tolerate more inflationary pressure.”
Kyle Rodda, a senior analyst at Capital.com Inc. in Melbourne:
“Asian currencies and stocks, especially tech names, will be pressured by a hawkish Fed. It’s almost unimaginable that anything vaguely techy can thrive in an environment where the US two-year yield is around 5.2%.”
“Outside the yen, the biggest swing factor going forward will be Chinese policy. In the absence of anything meaty on that front, it’s downward pressure on currencies, weakness in equities by virtue of a hawkish Fed.”
Hebe Chen, market analyst for IG Markets Ltd. in Melbourne:
“The market is likely to feel a sharp pain as one more hike is confirmed to be on the horizon, indicating that Asian currencies are poised to remain at the bottom of the valley for an even longer period.”
Kellie Wood, deputy head, fixed income, Schroder Investment Management Australia in Sydney:
“The hawkish tone means we should expect shorter term underperformance of bonds as the markets prices out interest-rate cuts in 2024/25 and weakness in risky assets as the market searches for the end to the policy cycle in the US.”
Chamath De Silva, a senior fund manager at BetaShares Holdings in Sydney:
Asia markets “should open weaker based on the moves in US stocks and SPI futures. It was a bit of a hawkish surprise and that’s consistent with the cross market moves. The weakness in US equities was most pronounced in tech and growth stocks, and I expect to see similar moves in Asia.”
“In contrast, we had strength in the traditional defensive equity sectors, such as utilities and health care, so there is clearly some growing risk aversion.”
Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney:
BOJ Governor Kazuo Ueda is unlikely to give strong guidance at Friday’s meeting, so “USD/JPY can therefore rise further if markets push back their expectations of BOJ tightening.”
“Judging by officials’ comments, I think we’re getting closer to an intervention. I still don’t think there’s a ‘line in the sand’ for the Japanese authorities to intervene. The speed of change in the yen matters more.”
Matthew Haupt, a fund manager at Wilson Asset Management in Sydney:
“Expect hawkish signaling to weigh on risk assets in the very short term and the dollar stronger for longer, too.”
“It’s not a great recipe for risk assets but I’m not sure if the hawkish signaling will hold in the medium term as economic data will start to override the Fed messaging.”
Robert Thompson, macro rates strategist at Royal Bank of Canada in Sydney:
The first-order impact on Australian government bonds “will be to drag yields higher across the curve, but what will be interesting is whether we follow Treasuries and flatten or whether given a pretty well-anchored RBA we instead see more of a reaction at the longer end.”
“We’re of the view that 10-year ACGBs should underperform US Treasuries from here and trade at a positive spread. That goes with Australia’s yield curve flattening less than US post-Fed.”
–With assistance from Ruth Carson, Aya Wagatsuma and Michael G. Wilson.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.