Asian markets track Wall St down as Fed looms

HONG KONG, China — Asian stocks sank in holiday-thinned trade Wednesday, tracking a sharp sell-off on Wall Street after fresh US data dealt another blow to hopes the Federal Reserve will cut interest rates this year.

The reading on labour costs followed a string of recent reports out of Washington suggesting the central bank's battle against inflation has some way to go, even with borrowing costs at two-decade highs.

It also adds to the angst among investors leading up to the Fed's latest policy decision later in the day, which many were already expecting to see officials turn more hawkish.

That will be followed by closely watched non-farm payrolls (NFP) figures that should provide a fresh snapshot of the labour market, which has so far remained resilient to the high rates environment.

Wall Street's three main indexes tanked Tuesday after news that the employment cost index, the Fed's preferred gauge of wage inflation, came in hotter than forecast in the first quarter.

That provided another hammer blow to hopes the Fed will cut rates this year, with bets already reduced to just one by January -- compared with an expected six at the start of 2024.

Some are even warning of a possible hike.

Investors ran for the sidelines on the report, which came as another batch of data showed US consumer confidence had tumbled to its lowest level since July 2022.

The wage "data delivers a straightforward message: the US economy isn't showing signs of rapidly slowing inflation", said SPI Asset Management's Stephen Innes.

"These numbers essentially bury any hopes for imminent rate cuts, unless, of course, a significant shift occurs such as a negative (NFP) print.

"Overall, this data provides little support for the Fed to consider rate cuts shortly, signalling a need for more convincing evidence to prompt such action."

The negative mood spilled over into Asia, where most markets were closed for a holiday.

Tokyo, Sydney and Wellington were all in the red, while London opened slightly higher.

"Public holidays in China and parts of Europe will thin markets slightly, and there's likely to be a level of risk aversion in Asian trade today going into the (Fed) decision," Capital.com