Global Markets – Chip stocks tumbled in Asia, dollar companies on Fed expectations

By Kevin Buckland

TOKYO (Reuters) – Thin stocks took a hit on Thursday, sending most Asian stock indices lower, after gloomy signals from Micron Technology Co. overnight about overstocked inventories and slowing demand.

Meanwhile, the US dollar rebounded after stronger-than-expected US retail sales indicated that the Federal Reserve was unlikely to ease up in its battle with inflation.

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, it is services that are driving inflation, and that could have more continuity,” said Salim Ramji, global head of ETFs and index investments at BlackRock. Reuters Global Markets Forum on Wednesday.

“Minimum volatility strategies (in stocks) can help investors stay invested while minimizing risk,” he said.

Hong Kong’s Hang Seng Index tumbled 2.7%, as technology shares fell more than 5%. Shares in mainland China also fell, with blue chips down 1.2%.

Japan’s Nikkei lost 0.4% and South Korea’s Kospi fell 1.1%, both led by heavyweight chip players dropping.

Overnight, the Philadelphia Semiconductor index fell 4.3% after Micron said it would reduce the supply of memory chips and make more cuts to its capital spending plan.

The technology-focused Nasdaq fell 1.5% while the S&P 500 fell 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.

Comments from Fed officials on Wednesday also remained hawkish. Fed Governor Christopher Waller said there are still ways to pursue rates, while San Francisco Fed President Mary Daley told CNBC that a pause in rate hikes was not part of the discussion.

“The Fed’s commentary, like its flexible spending numbers, gave little succor to anyone looking for an imminent pivot,” Ted Nugent, markets economist at the National Australia Bank, wrote in a note to a client.

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 75 basis point 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.

Crude oil continued to decline in Asia after settling more than a dollar lower overnight, after the resumption of Russian oil shipments through the Druzhba pipeline to Hungary, and as rising coronavirus cases in China weighed on sentiment.

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.

(Reporting by Kevin Buckland; Additional reporting by Divya Choudhury; Editing by Lincoln Feast and Edmund Kellman)

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