Stocks slip

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SINGAPORE- Stocks eased on Wednesday, while the dollar was under a little pressure, as traders shifted focus from US banking stress to expectations for an imminent peak in the Federal Reserve’s interest rate cycle.

MSCI’s index of Asia shares outside Japan dropped 0.5 percent to retreat further from Monday’s two-month high, and in morning trade Japan’s Nikkei looked set to snap an eight-day winning streak with a modest 0.4 percent loss.

Overnight, the S&P 500 scraped a 0.1 percent gain. Bank of America’s first-quarter profit beat forecasts, and shares rose, following strong results at rivals that seem to have soothed market concerns about the sector’s stability.

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“So far the major banks that have reported have largely helped to settle market nerves,” said Khoon Goh, head of Asia research at ANZ in Singapore. “With those stresses easing away, markets are now back to focusing on the Fed.”

To that end a slew of Federal Reserve speakers are in the frame this week ahead of the pre-meeting blackout period preceding May’s policy announcement that begins on the weekend.

The Fed’s “beige book” of economic conditions is published later on Wednesday and appearances are due from Chicago Fed President Austan Goolsbee and New York Fed President John Williams.

Markets are pricing an 86 percent chance the Fed raises rates by 25 basis points at the May meeting, and that wasn’t swayed terribly much by conflicting outlooks from two non-voting Fed officials on Tuesday.

St Louis Fed President James Bullard told Reuters the Fed ought to keep raising rates to subdue persistent inflation. Atlanta Fed President Raphael Bostic told CNBC he thinks the Fed should hike one more time then pause to consider the next move.

Traders have been tiptoeing out of bets that rate cuts will fairly swiftly follow a final hike, though remain positioned for a peak.

The inversion between three-month Treasury yields and 10-year yields, at more than 160 bps, is the deepest since 1981 when the Fed funds rate was climbing down from a mid-year peak of 19 percent. – Reuters

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