Asian Stocks Retreat as Dollar Strength Saps Mood: Markets Wrap

(Bloomberg) — Equities in Asia backtracked Friday, while the dollar advanced as investors parsed economic data for signals on interest-rate trajectories around the world.

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China’s CSI 300 Index fell as much as 1.6%, on pace for its largest daily drop since January, and the Hang Seng Tech Index dropped more than 4%. Australian and Korean shares also declined. Japanese stocks rose. A gauge of the region’s shares had touched the highest level in almost two years in the prior session.

The dollar was on track for its best week in two months. It rose against almost all Group-of-10 peers and emerging-Asian currencies, as an unexpected rate reduction by the Swiss National Bank spurred concerns that other major central banks will cut policy rates faster than the Fed.

The onshore yuan fell to its weakest in four months Friday, breaching a closely watched technical level after a months-long effort by Chinese authorities to keep the managed currency in a narrow range. The People’s Bank of China lowered the daily reference rate by the most since early February, a sign to some that Beijing is greenlighting more depreciation amid a bumpy economic recovery.

“The market is having a bit of a re-think on the dollar post the FOMC,” said David Forrester, senior FX strategist at Credit Agricole CIB. “The weaker onshore yuan is having ripple effects onto the rest of dollar-Asia as well as G-10 currencies, especially the Aussie, which often acts as a proxy for the yuan in the G-10 space.”

Contracts for US stocks were little changed in Asian trading after the S&P 500 index advanced 0.3% to a fresh high Thursday — its 20th of the year — led by gains in industrials and banks.

US economic data supported the argument the Fed may be forced to backtrack on its rate-reduction forecasts a day after the central bank indicated three 25-basis-point cuts in 2024. Housing, manufacturing and labor-market data released Thursday in the US pointed to a resilient economy that could prompt the Fed to reduce interest rates slower than the market expects.

The yen was little changed, trading near 152 per dollar as Japan’s inflation accelerated to the quickest pace in four months. Markets will stay focused on whether the Bank of Japan might follow its first interest rate hike since 2007 with further increases later this year.

Raising Forecast

Societe Generale SA increased its S&P 500 year-end forecast to 5,500 from 4,750 — the highest among strategists tracked by Bloomberg. “US exceptionalism is going from strength to strength,” wrote Manish Kabra, head of US equity strategy for the French bank. “Despite widespread market optimism, we view this as rational rather than excessive.”

Some US tech stocks faltered, with Apple Inc. and Alphabet Inc. falling against the backdrop of heightened regulatory pressure. The US Justice Department and 16 attorneys general are suing the iPhone maker for violating antitrust laws.

The Reserve Bank of Australia released a financial stability review on Friday, saying that banks are strong and households resilient to higher rates.

Ahead in Asia, Taiwan will publish February jobs data.

In commodities, oil held a two-day drop, with traders assessing the outlook for global interest rates and geopolitical tensions in the Middle East. Elsewhere, Bitcoin traded below $66,000, while gold fell after surging above $2,200 an ounce for the first time.

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