Asian equity futures drifted lower as US shares fell following economic data that exceeded forecasts, bolstering the case for the Federal Reserve to keep interest rates elevated for longer.

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Contracts for stock benchmarks in Japan and Australia dropped, while those for Hong Kong equities were mostly flat. The S&P 500 fell 0.7 percent to close lower for a second day. The tech-heavy Nasdaq 100, which is more sensitive to interest rate expectations, declined 0.9 percent. US futures were little changed in early Asian trading.

Treasuries also retreated, pushing yields higher. Two-year yields rose around six basis points to climb above 5 percent, while the 10-year rate rose two basis points. Australian bond yields followed Thursday, edging higher.

The Institute for Supply Management’s US services index for August reached 54.4, its highest monthly reading since February and one that topped all estimates in a Bloomberg survey of economists. A reading above 50 denotes growth.

The data supported the view the Fed has one rate hike left this year, adding upward pressure to the dollar Wednesday. Traders will closely be monitoring markets in Japan and China after both countries took measures to defend their currencies. Japan issued a stern warning about yen depreciation Wednesday, while China’s central bank provided unprecedented guidance to stabilize the yuan.

“The ISM Services Sector report underscores the resilience of the largest portion of the economy,” said Quincy Krosby, chief global strategist at LPL Financial, who pointed to higher prices shown within the data. “This is is certainly not good news for a data-dependent Fed.”

In Asia, China will release foreign reserves and trade data while Malaysia is expected to keep rates on hold at 3 percent. Reserve Bank of Australia’s outgoing Chairman Philip Lowe will speak, as will Bank of Japan board member Junko Nakagawa.

Oil clung to a Wednesday gain, extending a run of nine daily advances. West Texas Intermediate has risen around a fifth in the past three months to edge closer toward $90 per barrel.

Elsewhere, the pound slid after Bank of England Governor Andrew Bailey suggested UK rates may not have to rise any further. The Canadian dollar was little changed after the Bank of Canada held rates steady.

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First Published:Sept 7, 2023 6:23 AM IST