Asian stocks declined Friday after a slew of Federal Reserve officials signaled they will combat inflation aggressively and the Nasdaq 100 fell to its lowest level since October.
Equities tumbled across the region, with indexes in Japan and Korea down more than 1%. US futures fluctuated after American stocks tumbled Thursday, led by technology companies, which are seen as most sensitive to higher rates. Treasury yields rose, while Japan’s five-year yields climbed to their highest level since 2016.
Fed Governor Lael Brainard said officials could boost rates as early as March to ensure that generation-high price pressures are brought under control. Federal Reserve Bank of Philadelphia President Patrick Harker and Chicago bank leader Charles Evans joined the calls by their policy-making colleagues for higher interest rates this year.
Rising rates — an upshot of strong economic growth — could drive investors toward value stocks, which tend to be more cyclical and offer near-term cash flows.
“We are in a position where much that has been positive for equities is maybe moving to neutral or negative,” said Sarah Hunt, portfolio manager at Alpine Woods Capital Investors. “While there are still few alternatives, it makes the equity market ripe for more fluctuations over the next few months as we see how the data shake out and how the Fed reacts.”
In addition, earnings may come into play: the valuation gap between Big Tech and the rest of the market is likely to narrow as the pace of earnings-per-share growth remains below that of the S&P 500 into the fourth quarter, according to Gina Martin Adams, chief equity strategist at Bloomberg Intelligence.
Prices paid to US producers decelerated in December as two key drivers of inflation in 2021 — food and energy — declined from a month earlier, representing a respite in the recent trend of sizable increases. At the same time, producers continued to face a variety of materials shortages, limited labour supply and transportation bottlenecks that sent prices soaring last year.
In Asia, the Bank of Korea raised interest rates on Friday for the third time since the summer. The rare back-to-back hike likely indicates that Governor Lee Ju-yeol had become increasingly uncomfortable about waiting to move again, following recent signs that the Fed will probably raise borrowing costs earlier and more aggressively.
Oil headed for a fourth weekly advance, the longest streak since October, amid signs the market is tightening.
Here are some key events coming up:
- Wells Fargo, Citigroup and JPMorgan are due to report earnings on Friday.
- US business inventories, industrial production, University of Michigan consumer sentiment, retail sales on Friday.
- New York Fed President John Williams speaks Friday.
Some of the main moves in markets as of 2 p.m. in Tokyo:
- S&P 500 futures gained 0.1% The gauge fell 1.4% on Thursday
- Nasdaq 100 futures were flat. The index fell 2.6% on Thursday
- S&P/ASX 200 dropped 1%
- Topix slid 1.4%
- Kospi declined 1.4%
- Hang Seng slipped 1%
- Euro Stoxx 50 futures dropped 0.9%
- The Bloomberg Dollar Spot Index declined 0.2%
- The euro gained 0.2% to $1.1475
- The Japanese yen rose 0.4% to 113.72 per dollar
- The yield on 10-year Treasuries rose two basis points to 1.72%
- Australia’s 10-year yield fell about one basis point to 1.85%
- Japan’s five-year yield climbed two basis points to minus 0.02%
- West Texas Intermediate crude declined 0.3% to $81.89 a barrel
- Gold rose 0.2% to $1 826.41 an ounce