SYDNEY (Reuters) – Asian shares swung lower on Thursday while bonds rallied after a downbeat economic outlook from the U.S. Federal Reserve stoked speculation it would have to add to already historic levels of stimulus to underpin a recovery.

FILE PHOTO: An employee of the Tokyo Stock Exchange (TSE) works at the bourse in Tokyo, Japan, February 6, 2018. REUTERS/Toru Hanai

After a slow start, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 1.1%, potentially putting an end to a 10-session winning streak.

Japan’s Nikkei slid 2.1% as the yen firmed, though Chinese blue chips managed to hold steady.

E-Mini futures for the S&P 500 fell 1.1%, while EUROSTOXX 50 futures lost 2.2% and FTSE futures 1.6%.

In a challenge to the stock market’s recent optimism, the Fed predicted the U.S. economy would shrink 6.5% in 2020 and unemployment would still be at 9.3% at year’s end.

Data out earlier had also shown core U.S. consumer prices fell for a third straight month in May, the longest stretch of declines on record.

As a result, Fed Chair Jerome Powell said he was “not even thinking about thinking about raising rates”. Instead, he emphasised recovery would be a long road and that policy would have to be proactive with rates near zero out to 2022.

“While Powell did not commit to any new action at this time, his focus on downside risk and uncertainty reinforces the message that they will take further action, probably by September,” was the take of economists at JPMorgan.

“Outcome or calendar based guidance looks likely and Powell left the door open for moving to some form of interest rate caps.”

Powell confirmed the Fed was studying yield curve control, a form of easing already employed by Japan and Australia.

All of which, saw yields on 10-year Treasuries fall 9 basis points on Wednesday, the biggest daily drop in almost two months. Yields were down at 0.71% on Thursday, a sharp rally from last week’s peak of 0.96%.

The risk of more easing initially had the U.S. dollar under pressure, seeing it touch a three-month low on a basket of currencies at 95.714.

“The Fed’s view – that you’ll be paid almost nothing for holding U.S. dollars until at least 2022 – is never going to be helpful for any currency,” noted analysts at CBA.

The dollar later steadied as risk appetite waned and stocks came off. It was last at 107.03 yen, after hitting a one-month trough at 106.87.

The euro edged back to $1.1346 having hit its highest since mid-March on Wednesday at $1.1422.

The prospect of super-low rates for longer was a boon for gold overnight, leaving it at $1,731 an ounce.

Oil prices turned lower after U.S. data showed crude inventories had risen to record highs.

Brent crude futures fell $1.18 to $40.55 a barrel, while U.S. crude lost $1.32 to $38.28.

Editing by Sam & Shri Navaratnam

You May Also Like

Starbucks U.S. sales climb as customers spend more on pricey drinks

In this article SBUX Follow your favorite stocksCREATE FREE ACCOUNT Starbucks on…

IHOP rolls out biscuits menu nationwide for the first time as the chain fights slowing sales

In this article DIN Follow your favorite stocksCREATE FREE ACCOUNT IHOP’s new…

DC Studios’ future begins with Marvel’s ‘Guardians of the Galaxy Vol 3’

In this article WBD DIS Follow your favorite stocksCREATE FREE ACCOUNT Combo…

DraftKings (DKNG) earnings Q3 2023

New England Patriots cornerback Stephon Gilmore, #24, stretches during the New England…