Asian stocks slip as US rate risk sours sentiment

Most Asian share markets followed S&P 500 futures lower on Thursday as speculation of faster hikes in US interest rates soured risk appetite globally.

The dollar held onto most of its overnight gains courtesy of higher Treasury yields, though the sudden shift to safety also spurred demand for the Japanese yen.

E-Mini futures for the S&P 500 ESc1 lost 0.3 per cent and FTSE futures FFIc1 slid 0.8 per cent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.8 per cent, with most of the region in the red.

Japan's Nikkei .N225 shed 1.1 per cent, with office equipment maker Ricoh (7752.T) down more than 5 percent on news it was conducting impairment tests.

Chinese markets were in a better mood, returning from their long holiday break with a gain of 2 per cent for the Shanghai blue-chip index .CSI300.

On Wall Street, the Dow .DJI had ended Wednesday down 0.67 per cent, while the S&P 500 .SPX fell 0.55 per cent and the Nasdaq .IXIC 0.22 per cent.

The retreat came after minutes of the Federal Reserve’s last policy meeting showed the usual concerns that inflation might disappoint, but also an expectation of faster economic growth due to fiscal stimulus.

In particular, members agreed that “the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate.”

That led investors to narrow the odds on faster hikes with a host of Fed fund futures hitting contract lows. Three rate rises are now almost fully priced in for this year, compared to two as recently as December, reports Reuters.

“Participants saw a more favorable outlook as supporting gradual rate hikes,” noted Barclays analyst Michael Gapen.

“Since then, more stimulus has arrived and there is some tentative, though not conclusive, evidence of stronger wage and inflation data,” he added. “We continue to expect four rate hikes in 2018 and 2019.”