Asian Equities: Asian equities shed interest rate risk as US consumers spend

The S&P 500 rose 0.3% overnight. MSCI’s broadest index of Asia Pacific stocks outside of Japan was up 0.6% in early trade. Japan’s Nikkei rose 0.6%.

The greenback was near a six-week high against the yen, yuan and kiwi. Benchmark 10-year government bond yields, which rise when bond prices fall, hit their highest levels since early January.

US retail sales rose the fastest in nearly two years in January — up 3%, bucking expectations for a 1.8% rise — as Americans bought cars, clothes and furniture despite higher borrowing costs.

The numbers followed stronger-than-expected jobs data and higher-than-expected inflation.

Equities — the Nasdaq is up 15% so far this year — are hanging on to positive levels, while investors in rates markets are quick to abandon hopes of rate cuts later in 2023.

“A lot of the data has been quite positive, so people might be like, ‘Where’s the recession?'” said Jason Wong, a senior market strategist at BNZ in Wellington. “It’s positive for revenue and that can offset interest — at least that’s the benevolent explanation,” he said. “Either that or it’s a massive ‘sell’ (signal)”.

US interest rate futures – which just a few weeks ago were suggesting that the fed funds rate, currently between 4.5% and 4.75%, would fall below 4.5% by the end of the year – are now looking higher over the course of the year Annual interest over 5%.

Yields on two-year government bonds, which also reflect short-term interest rate expectations, reached their highest level since November at 4.703% overnight. The 10-year yield hit 3.828% on Thursday.

S&P 500 futures were up 0.2%.

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In Asia, South Korea’s Kospi led gains, up 1.4%. The Hang Seng rose 0.7% and stocks in mainland China were flat.

Australia’s ASX 200, where companies are in the midst of earnings reporting, rose 0.9%. Asset manager AMP led the losers with a 34% annual profit decline that sent its ailing shares down 13%. A 26% earnings gain at telecommunications company Telstra pushed the stock to a year-high.

Elsewhere, the reassessment of the interest rate outlook puts an end to several months of dollar selling in FX markets.

The US dollar index is set for a third consecutive weekly gain — the longest streak since September, when the index hurtled towards a 20-year high.

The dollar hit a six-week high of 134.36 yen on Wednesday and was trading at 133.99 yen early Thursday. It is also testing resistance near $1.0656 per euro last seen at $1.0669.

The Australian dollar fell 0.5% and above its 50-day moving average to $0.6868 after a surprise rise in unemployment that also dampened bets on rate hikes.

“The Aussie still has some support around the $0.6850/80 area, but with the US dollar rallying, the Aussie certainly looks vulnerable,” said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.

Commodities have struggled for traction as the dollar strengthened. Brent crude futures were up 0.2% to $78.76 on Thursday. Gold attempted to stabilize at $1,840 an ounce.

Bitcoin, meanwhile, was on a hop. It hit a six-month high of $24,895.