TOKYO, Jan 20 (Reuters) – Most Asian equity markets edged higher on Friday, while the U.S. dollar hovered near its weakest level since May, as investors worried about the risks of a global recession being pushed by the Federal Reserve with an interest rate hike.
The US Treasury yields remained elevated after hitting four-month lows overnight in Tokyo. Japanese government bond yields remained bearish two days after the Bank of Japan defied investor pressure to further loosen yield curve controls.
Japan’s Nikkei (.N225) added 0.16%, while Australia’s benchmark (.AXJO) rose 0.09%, although South Korea’s Kospi (.KS11) slipped 0.24%.
Hong Kong’s Hang Seng (.HSI) advanced 0.75% and mainland blue chips (.CSI300) were 0.32% stronger.
Asian markets showed little resilience despite an overnight selloff on Wall Street, with the S&P 500 (.SPX) down 0.76%. E-mini futures showed a minor bounce at the open, rising 0.24%.
Worries about further Fed tightening were fueled by strong US employment data and fresh hawkish rhetoric from central bank officials.
Weekly jobless claims were lower than expected, pointing to a tight labor market.
Boston Fed President Susan Collins said the central bank would likely need to raise rates “just above 5%,” then keep them there, while Fed Vice Chair Lael Brainard said that despite recent moderation in inflation, it remains high and “policy” is somewhat Time needs to be sufficiently restricted.”
Those comments, especially from “generally reliable Fed dove” Brainard, “are a threat to the growth rate,” said Tony Sycamore, an analyst at IG.
“For her to come out and say we still need higher rates, that really fuels the idea that the Fed actually wants to raise rates by the estimated 75 basis points in December.”
“The labor market is a little too hot to close back,” Sycamore added.
Markets expect the policy rate to remain just below 5% in June, suggesting just 50 basis points of additional tightening.
Meanwhile, the dollar index, which measures the greenback against six peers including the euro and yen, was little changed at 102.10, having touched a 7 1/2-month low of 101.51 on Wednesday.
The benchmark 10-year Treasury yield was around 3.4% after bouncing overnight to 3.321%, the lowest level since mid-September.
The equivalent JGB yield was flat at 0.405%, holding around the level since the BOJ’s 0.5% policy ceiling was knocked back on Wednesday, while the central bank refrained from making further changes to its yield curve controls.
Elsewhere, crude oil prices continued to rise. Brent futures for March delivery rose 48 cents, or 0.6%, to $86.64 a barrel, while U.S. crude added 54 cents to $80.87 a barrel, up 0.7%.
(This story has been amended to replace the increase in the Hang Seng Index in paragraph 4)
Reported by Kevin Buckland
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