Asian stocks drop as Fed bets propel dollar, commodities mixed

 A man walking past a share prices board in Tokyo.
A man walking past a share prices board in Tokyo.PHOTO: AFP

WELLINGTON (BLOOMBERG) - Asian stocks retreated as speculation US interest rates will be raised as soon as next month underpinned the dollar. Commodities were mixed, with copper falling as oil rallied.

Consumer stocks led the MSCI Asia Pacific Index down 0.4 per cent by 9:20 a.m., with Japan's Topix index dropping at least 0.2 per cent with Australian shares. US index futures were little changed after Apple Inc. drove equity losses Tuesday. The Bloomberg Dollar Spot Index extended gains at a four-month high. Oil rose a second day, continuing its recovery from Monday's rout, while copper resumed losses with silver.

Traders boosted bets on a September rate hike in the US after Federal Reserve Bank of Atlanta chief Dennis Lockhart said he would only endorse putting it off should there be a significant deterioration in economic data.

Oil's rebound steadied commodity markets, quelling losses among energy and mining stocks ahead of a swag of services industry data from China to Japan and the US.

"The overseas environment will continue to be a drag on the market," said Hiroichi Nishi, a manager at SMBC Nikko Securities in Tokyo. "Lockhart's comments made the market wary of rate hikes once again. Caution toward the Chinese economy continues to weigh on the market as well."

Mr Lockhart told the Wall Street Journal there is "a high bar right now to not acting, speaking for myself."

While talking up the economy's recovery from a first-quarter slump, the central banker acknowledged the downward pressure on inflation exercised by the drop in oil prices. Much anticipated monthly payrolls data is due later this week as the Fed mulls whether to raise rates for the first time since 2006.

The comments saw an uptick in bets on a September increase, with the probability of a hike at the Fed's next meeting at 48 percent, based on the assumption that the effective Fed funds rate will average 0.375 per cent after the first increase. That compared with the 38 per cent chance priced in earlier on Tuesday.

"Lockhart is both a centrist and a 2015 voter on the FOMC, making this assertion important," Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd., wrote in a client note, referring to the Fed Open Market Committee which sets policy. "It changes the burden of proof - data no longer has to improve materially for the Fed to move in September. It simply has to avoid worsening."