Tech-Led Declines in Asia Stocks; Dollar Strengthens on Inflation Data

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Asian stocks faced significant declines on Friday, mirroring losses in the tech sector on Wall Street, driven by concerns over hotter-than-expected U.S. inflation data, which tempered expectations for Federal Reserve interest rate cuts.

U.S. benchmark bond yields hovered around 4.3%, maintaining levels reached on Thursday for the first time this month, following a notable increase, while the dollar reached its highest point since March 5 against major currencies.

Crude oil prices retreated after briefly surpassing $85 per barrel for the first time since November, still on course for a weekly gain of nearly 4%.

The unexpected surge in U.S. producer prices, coupled with earlier elevated consumer inflation, led futures markets to lower the likelihood of a June rate cut to 60%, down from about 67% late on Wednesday, according to LSEG’s rate probability app. Expectations for 2024 now suggest fewer rate cuts, down from three to four approximately two weeks ago.

The reaction was most pronounced in the U.S. Treasury bond market, with rising yields driving the dollar higher.

Despite the Bank of Japan’s decision to maintain the medium-term lending facility rate, Chinese blue chips remained largely unchanged. Japan’s Nikkei slipped 0.3%.

Signs suggest a potential exit from ultra-easy stimulus at the Bank of Japan’s upcoming policy meeting, with reports indicating preparations to end its negative interest rate policy. Japan’s 10-year bond yield rose to 0.795%, the highest in over three months.