Asian Stock Markets Decline, Dollar Strengthens Amid Uncertainty Over Rate Cuts

Asian Stocks Fall as Dollar Rises on Strong U.S. Economic Data

Asian stocks took a hit on Friday as the dollar strengthened following robust U.S. economic data, leading investors to shy away from risky assets. The MSCI’s broadest index of Asia-Pacific shares outside Japan fell by 0.5%, signaling a 1% weekly decline and breaking a four-week winning streak. Japan’s Nikkei also dropped by 1.45%.

In China, stocks remained relatively stable in early trading, with blue-chip stocks edging down by 0.05%. This came as China’s military conducted war games around Taiwan for the second consecutive day. Meanwhile, Hong Kong’s Hang Seng Index was down by 0.33%.

The U.S. jobless claims data showed a drop, while S&P Global’s Flash PMI survey indicated that business activity expanded faster than expected in May. These positive economic indicators, coupled with hawkish minutes from the Federal Reserve’s recent meeting, have caused traders to reduce their expectations for rate cuts this year.

Market participants are now pricing in just 35 basis points of easing in 2024, compared to initial expectations of 150 bps of cuts at the beginning of the year. The changing outlook for U.S. rates has pushed up yields, with the benchmark U.S. 10-year yield reaching a one-week peak of 4.498% on Thursday.

The dollar index, which measures the U.S. currency against a basket of major peers, has also seen a significant increase, rising nearly 0.6% for the week. This has put pressure on the yen, with the Japanese currency hovering near a three-week low.

Overall, the market sentiment remains cautious as investors await further economic data and signals from central banks regarding future monetary policy decisions.