Asian stocks fall as Fed rates worry traders. On Thursday, a surprise Bank of Canada interest rate hike raised concerns that U.S. rates could stay higher longer and the Federal Reserve could remain hawkish next week.

MSCI’s broadest Asia-Pacific index outside Japan (.MIAPJ0000PUS) declined 0.48%, while Japan’s Nikkei (.N225) fell 1%. S&P/ASX 200 (.AXJO) fell 0.29%.

Eurostoxx 50 futures were down 0.30%, DAX futures fell 0.31%, and FTSE futures fell 0.06%.
On Wednesday, Canada raised its overnight rate to a 22-year high of 4.75% to temper an overheating economy and soaring inflation.

Since January, the BoC has been on hold to evaluate prior raises.

The BoC’s move follows Australia’s surprise interest rate hike this week. The Reserve Bank of Australia warned of more rate hikes to reduce inflation.
NAB’s market economics head Tapas Strickland said BoC and RBA actions show central banks aren’t done increasing. “Next week’s U.S. CPI will determine if the Fed goes in June or skips as widely telegraphed.”

May consumer inflation is predicted to rise 0.30% on Tuesday. (USCPI=ECI)

The CME FedWatch tool suggested a 64% chance of the Fed staying put next week, down from 78% earlier. July traders expect a 25-basis-point boost.

A minority of Reuters-polled economists expect the Fed to raise rates at its June 13-14 meeting.

During June 2-7, 78 of 86 economists predicted the Federal Open Market Committee would maintain its federal funds rate at 5.00%-5.25%.

China shares (.SSEC) lost 0.12%, while Hong Kong’s Hang Seng Index (.HSI) fell 0.57%.

China’s May exports fell 7.5% year-on-year, the sharpest drop since January and far below experts’ 0.4% forecast.

“The weak export numbers will have observers looking for a new round of policy stimulus,” Saxo Markets strategists said.

Treasury yields stabilized in early Asian hours after rising overnight after Canada’s central bank announcement.

10-year Treasury notes yielded 3.795%, while 30-year bonds yielded 3.947%. The two-year U.S. Treasury yield, which follows interest rate forecasts, rose 1.7 basis points to 4.567%.

The dollar index, which tracks the dollar against six major peers, fell 0.038%, while the euro rose 0.09% to $1.0707.

After updated data indicated Japan’s economy grew more in January-March, the yen rose 0.22% to 139.80 per dollar.

The Canadian dollar increased 0.08% to 1.34 per dollar. At the same time, Turkey’s lira set a record low against the dollar as the newly re-elected government looked to loosen stabilizing measures after signaling a shift to more orthodox policies.

U.S. oil futures declined 0.22% to $72.37 a barrel, while Brent fell 0.25% to $76.76. After falling 1% on Wednesday, spot gold rose 0.3% to $1,945.89 an ounce on Thursday.