Asian shares ended mixed on Monday as the market predicted that the interest rates in the U.S. would remain higher for a longer period.
The MSCI's broadest index of Asia-Pacific shares, excluding Japan, went down by 0.2 percent to 511.39, close to the eight-week low it had hit on the previous trading day. The index is on track to lose about seven percent this month, which will wipe out nearly all gains it made in January.
In Japan, the Nikkei 225 index closed at 27,445.56, gaining 21.60 points or 0.079 percent. On the other hand, the Hang Seng index in Hong Kong concluded the session at 19,785.94, falling by 157.57 points or 0.79 percent.
China's benchmark CSI 300 closed higher at 4,069.46 or gained 0.63 percent despite falling earlier in the session. Anderson Alves, a market analyst at U.K.'s ActivTrades, said the geopolitical tensions between the U.S. and China due to the ongoing Ukraine war have made investors even more cautious.
"Investors are likely to be monitoring any escalation from the Russia-Ukraine war," Alves added. "Any concrete action from China in support of Russia could be seen as a strong rationale for a derisk and deleverage from Asian exposure."
In Australia, the S&P/ASX 200 index gained 0.47 percent to close at 7,258.40. New Zealand's S&P/NZX 50 also surged by 0.86 percent to 11,894.58.
Asian shares edge higher, dollar rally takes a breather https://t.co/ZEQ3pZ69PX pic.twitter.com/CIZf0qyDFn— Reuters (@Reuters) February 28, 2023
Since the U.S. dollar is the world's reserve currency, the expectation of higher interest rates in the U.S. is projected to make the global equity market more volatile in the foreseeable future. Investors will likely allocate their funds to lower-risk assets instead of equities.
The dollar index, which tracks the greenback against six other major currencies, went up by 0.172 percent to 104.83. The index is set to break its four-month losing streak with its recent rally.
Recently published U.S. economic data indicated that the U.S. economy remained strong despite the Federal Reserve's attempt to slow down the economy by tightening its rate policy.
The personal consumption expenditures price index — the Fed's preferred inflation indicator for its broad coverage of the economy — showed a 0.6 percent increase in January after only rising by 0.2 percent in December.
On Monday, government data also revealed that U.S. core capital goods orders posted a year-over-year increase of 5.3 percent in January, its largest gain in five months. Meanwhile, the National Association of Realtors (NAR) revealed that its pending home sales index jumped by 8.1 percent last month, the biggest hike in over two years.
Fed futures now predict that the federal funds rate will peak at around 5.4 percent, meaning that the central bank will likely conduct up to three more rate hikes in the coming months. The rate currently stands at 4.50 to 4.75 percent after a 25-basis-point hike at the beginning of February.
U.S. equity market update
All three benchmark indexes on Wall Street closed higher on Monday. The Dow Jones gained 72.17 points or 0.22 percent to close at 32,889.09. The S&P 500 also rose by 0.31 percent or 12.20 points, concluding the trading session at 3,982.24. Meanwhile, the Nasdaq Composite increased by 72.04 points or 0.63 percent to 11,466.98.
Six of 11 major sectors within the S&P 500 index traded in the green. Consumer discretionary and industrial sectors were the best performers, while utilities and consumer staples posted the biggest losses during the day.
Last week, the S&P 500 posted a weekly loss of three percent, its worst performance since the first week of December 2022.