SINGAPORE- Asian stocks retreated from three-month highs and the dollar held on to gains following strong US data that again suggested the Federal Reserve might stick longer with aggressive interest rate increases.
While investors remained hopeful of China’s economy improving with the easing of the country’s zero-COVID policy, analysts said markets had already priced in a lot of the upbeat news.
MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.4 percent, after climbing to a three-month high in the previous session. The benchmark has gained 21 percent from October lows on persistent chatter about China easing pandemic measures.
Stocks in Korea and Taiwan traded lower, while China’s broader index rose 0.6 percent and Japan and Hong Kong stocks were steady.
Tuesday’s muted performance in Asian equities came after global stocks and Treasury prices fell on Monday as new evidence of a strong US economy raised expectations that interest rates would stay higher for longer.
“The black swan in the room is the risk of the Fed being too late again, but this time in cutting rates,” said Havard Chi, head of research at hedge fund Quarz Capital Asia.
“Monetary policy works with a lag and key spot indicators such as falling housing prices, rental rates, commodities, and freight pricing as well as rising layoffs and inventories are already signaling a weakening US economy,” said Chi.
