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Asian shares slip, deepen weekly loss after hawkish Fed

4 minute read

People wear protective masks as they walk past a panel displaying the Hang Seng Index during morning trading following the outbreak of the new coronavirus in Hong Kong, China March 2, 2020. REUTERS/Tyrone Siu

  • MSCI Asia ex-Japan down 0.22%; Nikkei flat
  • Treasury yields rise; dollar steady near two-month highs
  • Gold gains ground after earlier plunge

SHANGHAI, June 18 (Reuters) - Asian shares extended losses for the week, U.S. Treasury yields climbed and the greenback hovered near two-month highs on Friday as investors digested comments from the U.S. Federal Reserve projecting rate hikes in 2023.

While the Fed messaging indicated no clear end to supportive policy measures such as bond buying, signals of faster-than-expected rate hikes indicated its concern about inflation as the U.S. economy recovers from the COVID-19 pandemic. read more

"What is pretty obvious is that the inflation genie is starting to sneak out of the bottle, and that will be a major driver of interest rates in the short to medium term," said James McGlew, executive director of corporate stockbroking at Argonaut in Perth.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) gave up early gains to dip 0.22%, extending declines into a fifth session.

Chinese blue-chip A shares (.CSI300) fell 0.36% and Taiwan shares (.TWII) lost 0.22%, but Hong Kong's Hang Seng index (.HSI) rose 0.49% and Seoul's KOSPI (.KS11) was up 0.13%.

Japan's Nikkei (.N225) was flat. read more

Gold prices, which plunged following the Fed comments on Wednesday, edged higher but were still set for their worst week since March 2020. Spot gold was last up 0.57% at $1,783.45 per ounce.

Adding to indications of a continued rebound in the world's largest economy, new U.S. data on Thursday showed growing factory activity and an easing in layoffs despite an unexpected rise in weekly jobless claims. read more

Hopes for a strong U.S. recovery pushed technology stocks higher on Thursday, lifting the Nasdaq Composite (.IXIC) up 0.87%. But worries about inflation and higher rates weighed on the broader market, with the S&P 500 (.SPX) edging down 0.04%. The Dow Jones Industrial Average (.DJI) fell 0.62%.

"The Fed for a long time was sending a very strong signal that they were prioritising the labour market, and they want this broad, inclusive recovery and healing of the labour market and they're going to run the economy red-hot to get there," said Richard Franulovich, head of FX strategy at Westpac.

"Now ... (inflation) is more of a priority. So that's the big wake-up call for markets. A very big wake up call."

Higher expectations of inflation continued to lift long-dated U.S. Treasury yields. Benchmark 10-year notes yielded 1.5141%, up from a close of 1.511% on Thursday.

The 30-year bond last yielded 2.0988%.

The dollar index climbed 0.09% to 91.958, not far off Thursday's more than two-month peak of 92.010 following the Fed meeting. The dollar pulled back against the yen to 110.19 , and the euro softened 0.08% to 1.1900.

Oil prices took a hit from the strong dollar as concerns over demand and new Iranian supply also weighed.

Global benchmark Brent crude was down 0.99% at $72.36 a barrel after settling at its highest price since April 2019 on Wednesday. U.S. West Texas Intermediate crude , which touched its highest level since October 2018 on Wednesday, shed 0.86% to $70.43.

Reporting by Andrew Galbraith; Additional reporting by Tom Westbrook in Singapore Editing by Christopher Cushing and Edwina Gibbs

Our Standards: The Thomson Reuters Trust Principles.

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