Asia stocks retreat from one-month high as Fed tempers rally

TOKYO (Reuters): Asian stocks pulled back from a one-month high on Friday as the Federal Reserve looked set to deliver another interest rate hike next month, paring gains made earlier this week after US midterm elections triggered a global equities rally.

Spreadbetters expected European stocks to follow Asia’s lead and open lower, with Britain’s FTSE losing 0.45%, Germany’s DAX slipping 0.3% and France’s CAC dipping 0.15%.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.3% and was headed for a loss of more than 1% for the week. On Thursday, the index hit its highest level since 8 October.

Hong Kong’s Hang Seng lost 2.4% and the Shanghai Composite Index .SSEC fell 1.2%.

Australian stocks slipped 0.1%, South Korea’s KOSPI edged down 0.05% and Japan’s Nikkei shed 1.05%.

The Fed held interest rates steady on Thursday but remained on track to continue gradually raising borrowing costs, pointing to healthy economic prospects that were marred only by a dip in the growth of business investment.

The central bank has hiked US interest rates three times this year and is widely expected to do so again next month.

The S&P 500 lost 0.25% and the Nasdaq shed 0.53% on Thursday after the Fed’s statement, and energy stocks were the biggest drag on the S&P as US crude oil prices fell. Wall Street shares spiked midweek following the US midterm elections, on a relief rally as the vote did not deviate significantly from investor expectations. “The Fed meeting outcome and its statement did not produce major surprises, but it managed to reinforce views that a rate hike is coming in December and this tempered equities,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“The Fed statement came after a steep surge in equities and gave the markets an opportunity to sell into the rally.”

In currency markets, the dollar stood tall after advancing against its peers overnight, buoyed by higher Treasury yields and the Fed’s intent to continue tightening monetary policy.

The dollar traded at 113.925 yen after brushing a five-week high of 114.09 overnight.

The euro dipped 0.15% to $1.1346 after shedding 0.55% the previous day.

The euro’s and yen’s declined helped the dollar index against a basket of six major currencies gain 0.75% on Thursday. It last stood little changed at 96.764.

After the Fed statement, the two-year Treasury yield rose to 2.977%, the highest in 10-12 years. China’s yuan slipped to an eight-day low of 6.9497 per dollar in onshore trade CNY=CFXS, highlighting the diverging monetary policy outlooks for China and the United States.

The US-China trade row also remained in focus.

“Trump’s administration will likely maintain a hawkish stance towards China, even though the Republicans lost the House during the midterm elections,” wrote Raymond Yeung, ANZ’s Chief Economist for greater China.

Crude oil prices struggled near eight-month lows as investors focused on swelling global crude supply, which is increasing faster than many had expected.

The market took stock of record US crude production and signals from Iraq, Abu Dhabi and Indonesia that output will grow more quickly than expected in 2019.

US crude futures were down 0.08% at $60.62 per barrel after falling to $60.40 the previous day, the lowest since 14 March.

Markets surge after US midterms

Three-month copper on the London Metal Exchange CMCU3 fell 0.5% to $6,122.5 a ton.

Copper fell 2.5% this week, poised for its biggest weekly loss since mid-August, pressured by a stronger greenback, which makes it more costly for non-US buyers of dollar-denominated commodities.