Stocks in Asia are mostly headed for early declines after traders reassessed the path forward for interest rates, tempering the optimism linked to Wednesday’s US inflation reading.

Equity futures for Japan and Australia fell, while those for Hong Kong edged higher. The moves followed a lackluster day on Wall Street where the S&P 500 and Nasdaq 100 both fell 0.2%, easing back from their highs. The Dow Jones Industrial Average briefly surpassed 40,000 points before retreating to close lower.

The Golden Dragon index of US-listed Chinese companies rose 2.5% Thursday following gains for Chinese benchmarks. The US-tradable shares in Alibaba Group Holding Limited rose 7.1%. Baidu Inc advanced after profits surpassed forecasts, while JD.com Inc also rose on robust results.

The downbeat day in US risk assets tracked a repricing of Federal Reserve rate cut expectations in the swaps market. Swaps traders had increased expectations from one cut in 2024 to two following Wednesday’s consumer price index data. On Thursday, those bets retreated, leaving just one cut fully priced in this year.

“There is a lot of leeway for the stock market if we do see a short-term pullback soon,” Matt Maley at Miller Tabak + Co. “Put another way, the bulls are still fully in charge right now, and so it will take a significant reversal to stem the tide of the upside momentum.”

Australian and New Zealand yields climbed, tracking moves in Treasuries on Thursday that partly undid moves from the prior day. Higher yields supported the greenback, with a gauge of dollar strength trading steady on Friday after stemming a two-day decline.

The yen was little changed early Friday after easing lower on Thursday. One former Bank of Japan chief economist suggested the central bank may raise interest rates three more times this year with the next move coming as early as June, given its easy policy settings.

In China, traders will be focused on signs of further support for the property sector, including a potential plan to clear excess inventory, according to media reports. Key officials will meet Friday morning to discuss such a plan, according to people with knowledge of the matter.

Higher for Longer

Three Federal Reserve officials said the central bank should keep borrowing costs high for longer as policymakers await more evidence inflation is easing, suggesting they’re not in a rush to cut interest rates.

Cleveland Fed President Loretta Mester, New York Fed President John Williams and Richmond Fed President Thomas Barkin, speaking separately Thursday, argued it may take longer for inflation to reach their 2% target.

Meantime, Jamie Dimon said he’s still more worried about inflation than markets appear to be. The JPMorgan Chase & Co. chief said significant price pressures are still influencing the US economy and may mean interest rates will be higher for longer.

“There are a lot of inflationary forces in front of us,” Dimon said in an interview on Bloomberg Television Thursday. “The underlying inflation may not go away the way people expect it to.”

In Asia, data set for release includes home prices, industrial output and retail sales for China, gross domestic product for Malaysia and Hong Kong, and exports for Singapore.

Commodities were broadly higher. West Texas Intermediate climbed early Friday, on pace for a third day of gains. Gold was slightly higher after a Thursday drop. Bitcoin traded above $65,000 after halting a decline in the prior session. – Bloomberg

Futures tied to the Dow Jones Industrial Average traded near flat Thursday night, after the preceding session brought much fanfare, with the blue-chip average briefly touching the key 40,000 milestone for the first time.

Futures connected to the 30-stock index added just 4 points. S&P 500 futures  and Nasdaq 100 futures also both traded near their flatlines.

While it was a modestly down day for the three major averages, there was no shortage of excitement among market participants. The Dow reached an intraday high of 40,051.05, above the psychologically important 40,000 level, before pulling back to end the day down 0.1%.

“The Dow’s remarkable rise has exceeded many expectations, including my own, but our perspective remains unchanged,” said Todd Morgan, chairman at Bel Air Investment Advisors. “Through wars, recessions, elections, impeachments, financial crises and on and on, investing for the long term in high-quality stocks is the key to building wealth.”

Despite Thursday’s retreat, the three major averages are tracking to end the week with gains.

The Nasdaq Composite has led the indexes up this week with a jump of 2.2%. The S&P 500 has added 1.4%, while the Dow has risen 0.9%.

These milestones come amid hopes that rates have peaked, according to Thomas Martin, senior portfolio manager at Globalt Investments. Continued optimism around artificial intelligence and corporate earnings growth also helped push the market into these uncharted waters, he added.

This week’s ascent has helped propel the three indexes into positive territory for the second quarter despite a tough start. The S&P 500 and Nasdaq are now each up more than 11% in 2024, while the Dow has climbed more than 5% on the year.

Investors will watch for leading indicators data due Friday morning. There are no major financial reports from companies expected as earnings season winds down, CNBC said.

Investing.com cited that Walmart Inc (NYSE:WMT), a major dow component, jumped 7% after lifting its guidance following fiscal Q1 results that beat Wall Street estimates on both the top and bottom lines.

Canada Goose Holdings Inc (NYSE:GOOS) surged more than 15% after the apparel maker reported better-than-expected fiscal Q4 results, and talked up the prospect of annual margin improvement.

Cisco Systems Inc (NASDAQ:CSCO), meanwhile, fell more than 2% as its cut to annual earnings guidance overshadowed an upgrade to revenue guidance and quarterly results that beat on both the top and bottom lines. 

Following Cisco’s two deep prior cuts to the FY24 outlook, UBS said it had  had believed EPS estimates “had been sufficiently reset lower to reflect the challenging demand backdrop.” “We were wrong,” it added.

Rate cut expectations continue, but Treasury yields rebound

Bets on a September rate cut continued to provide support to stocks as Wednesday’s softer-than-expected consumer price index data was followed up by data pointing to a cooling the labor market.

Initial jobless claims in the U.S. fell to 222,000 in week ended on May 11, down from an upwardly revised total of 232,000 in the previous week. Economists had called for a reading of 219,000.

Treasury yields, however, rebounded from a slump a day earlier as Fed speakers remain cautious and stress the need to monitor further incoming data for signs that inflation is on a sustainable path lower. 

“I now believe that it will take longer to reach our 2% goal than I previously thought,” Mester said, adding that further monitoring of incoming data will be needed.

Chubb hits record high as Buffett takes stake; Meta slips on EU probe

Elsewhere, Chubb (NYSE:CB) stock rose nearly 5%, to a record high, after Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) revealed it had taken a $6.72 billion stake in the insurer.

Meta Platforms (NASDAQ:META) stock fell nearly 2% after the European Commission launched a investigation into the Facebook parent over alleged breaches of the bloc’s strict online content law to do with child safety risks.