asian-stocks-hobbled-by-fading-expectations-for-aggressive-fed-rate-cut

Asian stocks hobbled by fading expectations for aggressive Fed rate cut

© Reuters. Passerbys walk past an electric screen showing Asian markets indices outside a brokerage in Tokyo© Reuters. Passerbys walk past an electric screen showing Asian markets indices outside a brokerage in Tokyo

By Hideyuki Sano and Noah Sin

TOKYO/HONG KONG (Reuters) - Asian stocks fell to their lowest levels in two and a half weeks on Tuesday as hopes dwindled for a hefty interest rate cut by the U.S. Federal Reserve at the end of the month, while technology companies were pulled lower by Apple (NASDAQ:) Inc's overnight slump.

Investors have rushed to scale back Fed rate cut expectations following unexpectedly strong gains in U.S. jobs for June, with U.S. stock markets falling for a second straight day.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.5% to its lowest since June 20.

Japan's slipped 0.1%.

In China, the and the blue-chip CSI300 were both 0.6% lower, while Hong Kong's fell 0.8%.

Australian stocks fell 0.4% and the Korean market was 0.3% lower.

On Wall Street, the lost 0.48% while the dropped 0.78%, led by fall in Apple after a brokerage downgraded the stock to "sell". ()

Apple's suppliers in Japan, such as Murata Manufacturing and Taiyo Yuden, fell 2.1% to 3.4%. In Greater China, suppliers from Hon Hai to AAC Tech lost between 1.3% and 2.8%.

Money market futures are still fully pricing in a 25 basis point (bps) cut at the Fed's next policy meeting on July 30-31, but have almost priced out a larger 50 bps reduction.

"The headline payrolls figures was pretty strong but wages were tepid, so on the whole a 25 basis-point cut would be justified as an pre-emptive move and I think the current market pricing is fair," said Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management.

Global equities will likely remain under pressure after last month's outperformance, Pictet Wealth Management said in a memo on Tuesday.

"After a strong rally in June that more than erased the May drawdown, valuations look demanding, underpinning our underweight stance," the firm said. "We expect (emerging market) equities to perform sideways in the coming weeks, but with the possibility of rotation to quality cyclicals."

Investors' focus is shifting to Fed Chairman Jerome Powell's testimony before Congress later in the week for clues on monetary policy.

"What the market will be looking for is whether the language is as dovish as previously (at last policy meeting)," said Christy Tan, head of market strategy for Asia at National Australia Bank. "There's been some over-dovishness in what the Fed needs to do in the market."

DOLLAR STRENGTH

In the currency market, fading Fed cut expectations helped the dollar. [FRX/]

The euro traded at $1.1213, near Monday's low of $1.1207, its weakest level since June 19.

The dollar changed hands at 108.75 yen, having risen up to 108.81 yen in the previous session, its highest in more than a month.

The versus a basket of six major currencies was little changed at 97.374.

The British pound stood at 1.2508, not far from six-month lows of $1.2481 touched on Friday.

Oil prices were slightly softer as concerns about whether slowing global economic growth would hit oil demand eclipsed tensions over Iran's nuclear programme.

futures fell 0.4% to $63.87 a barrel. U.S. West Texas Intermediate (WTI) crude futures shed 0.42% to $57.42.