SYDNEY- Asian shares eased on Thursday while bonds rallied after a downbeat economic outlook from the US Federal Reserve stoked speculation it would have to add to already historic levels of stimulus to safeguard recovery.
Still, stock losses were modest given the scale of their recent rise. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.3 percent, a natural pause after 10 straight sessions of gains.
Japan’s Nikkei slipped 1.1 percent as the yen firmed, while Chinese blue chips were off 0.4 percent. E-Mini futures for the S&P 500 fell 0.4 percent.
The Dow had ended Wednesday down 1.04 percent, while the S&P 500 lost 0.53 percent. Bucking the trend, the Nasdaq Composite added 0.67 percent to a fresh record helped by gains in Microsoft and Apple.
In a challenge to the stock market’s recent optimism, the Fed predicted the US economy would shrink 6.5 percent in 2020 and unemployment would still be at 9.3 percent at year’s end.
Data out earlier had also shown core US consumer prices fell for a third straight month in May, the longest stretch of declines on record.
As a result, Fed Chair Jerome Powell said he was “not even thinking about thinking about raising rates”. Instead, he emphasized recovery would be a long road and that policy would have to be proactive with rates near zero out to 2022.
“While Powell did not commit to any new action at this time, his focus on downside risk and uncertainty reinforces the message that they will take further action, probably by September,” was the take of economists at JPMorgan.
“Outcome or calendar based guidance looks likely and Powell left the door open for moving to some form of interest rate caps.”
Powell confirmed the Fed was studying yield curve control, a form of easing already employed by Japan and Australia.