Overnight, Asian equities have dropped on the back of robust US employment data reinforcing expectations that the Fed will hold interest rates higher for longer. The Kospi and Hang Seng both shed 1%. The CSI 300 down just 0.2% but the Hang Seng Mainland Properties index fell 3%. US initial jobless claims came in slightly lower than expected despite high interest rates, at 215,000 for the week ending May 18 versus a Reuters consensus estimate of 220,000. On Thursday S&P 500 closed 0.7% lower and the Nasdaq Composite dropped 0.4%, despite a surge in Nvidia following their quarterly results. Yields on interest rate-sensitive two-year Treasuries were up to 4.94%, as swaps have now priced in the Fed's first full quarter-point rate cut in December.
We also had Japanese inflation data overnight, which has slowed for the second straight month, therefore continuing to complicate the path for the central bank as it seeks to tighten policy. Consumer prices excluding fresh food prices rose 2.2%, decelerating from the previous month’s 2.6% while staying at above the Bank of Japan’s 2% target for a 25th month. Perhaps inflation will pick up in the coming months due to rising oil prices and weaker yen. The BoJ has come under increasing pressure to carry out additional rate rises but domestic consumption has remained weak due to higher living costs and a continuing decline in real wages.
British retail sales have come in much lower than expected this morning at -2.3% between March and April following a mild contraction the previous month, some believe it's the wet weather that kept shoppers off the High Street with far fewer purchases in clothing and furniture stores. Looking forward to the rest of the day, we have US Durable Goods orders and Canadian retail sales at 1:30pm.
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