Tokyo, Nov. 17 (BNA): Thin stocks took a hit, sending most Asian stock indices lower, following grim signals from Micron Technology Co. overnight about overstocks and slowing demand.
Meanwhile, the US dollar rebounded after stronger-than-expected US retail sales indicated that the Federal Reserve is unlikely to back down in its battle with inflation, Reuters reported.
This raised concerns about the economic outlook, with the US Treasury yield curve remaining sharply inverted in Tokyo trading indicating that investors are preparing for a recession.
“Inflation is likely to remain high for some time, because in the US, at least, services are driving inflation, and that could have more continuity,” Salim Ramji, global head of ETFs and index investments at BlackRock, told Reuters. Global Markets Forum.
“Minimum volatility strategies (in stocks) can help investors stay invested while minimizing risk,” he said.
Hong Kong’s Hang Seng Index (.HSI) fell 2.7%, with technology shares (.HSTECH) down more than 5%. Mainland Chinese stocks were also lower, with blue chips (.CSI300) down 1.2%.
Japan’s Nikkei (.N225) lost 0.4% and South Korea’s Kospi (.KS11) fell 1.1%, both led by heavyweight chip players.
Overnight, Philadelphia Semiconductor (.SOX) fell 4.3% after Micron (MU.O) said it would reduce the supply of memory chips and make further cuts to its capital spending plan.
The tech-heavy Nasdaq (.NDX) was down 1.5% while the S&P 500 (.SPX) was down 0.8%. Emini futures indicated little respite upon reopening, trading flat.
Investors are also re-evaluating the outlook for US monetary policy after consumer spending figures contradicted the narrative of the past week or so from cooler consumer and producer price data.
Money markets are currently giving odds of 93% that the Fed will slow down to a half point rate hike on December 14th, with only a 7% chance of another 75bp increase. However, traders still see the final interest rate close to 5% by next summer, up from the current policy rate of 3.75-4%.
The US dollar index – which measures the currency against six major peers – rose 0.28% to 106.57, rebounding from a drop to 105.30 on Tuesday after the release of producer price inflation figures.
The euro fell 0.3%, while the risk-sensitive Australian dollar fell 0.6%.
US 10-year Treasury yields rebounded modestly from a six-week low of 3.671% hit overnight in Tokyo trading, last settling at 3.725%, while the two-year yield continued to hold near its lowest level in a year. October 28 around 4.38%.
Gold fell 0.6% to around $1,762 an ounce on dollar strength.
Brent crude futures fell $1.04, or 1.1%, to $91.83 a barrel, while US West Texas Intermediate crude futures fell $1.14, or 1.3%, to $84.45 a barrel.
FAE