(Bloomberg) — A seven-day global stock rally lost steam in Asia, as uncertainty over the Federal Reserve’s rate-cut trajectory sapped investor appetite for risk.

The MSCI All Country World Index fell 0.2% as Asian stocks broke their longest winning streak since January. Shares in Hong Kong dropped 1.1% while the Topix index fell 0.8% in a retreat from its record-high close Thursday. The dollar rose 0.2% after President Donald Trump said firing Federal Reserve Chair Jerome Powell wasn’t necessary. 

Treasuries were flat after two days of declines. Gold held its drop while Bitcoin slumped 3%. Equity-index futures for the US rose 0.2% while contracts for Europe were little changed.

Strong jobs data Thursday weakened expectations for imminent cuts by the Fed ahead of the central bank’s meeting next week. Traders slightly pared bets on easing, projecting less than two reductions this year, after jobless claims fell for a sixth straight week. Last week, Fed Governor Christopher Waller had said policymakers should lower rates this month to support a labor market that is showing signs of weakness.

“There are still few signs of major cracks in the labor market,” said Chris Larkin at E*Trade from Morgan Stanley. “And if that picture remains intact, the Fed has one less reason to cut interest rates.”

  Ten Cap’s Jun Bei Liu says the “markets seem to have become a little bit immune” to trade risks and discussions.Source: Bloomberg

Trading desks at firms including Goldman Sachs Group Inc. and Citadel Securities are telling clients to buy cheap hedges against potential losses in US stocks as a slew of risks loom over the market’s record advance. 

Major indexes have soared as the US inks trade deals amid a solid earnings season. Wall Street’s so-called fear gauge hasn’t been this low since February, and the S&P 500 Index has rallied 28% since April 8. The S&P 500 inched to a new record Thursday – its 10th in 19 days – on tech gains. 

That backdrop is making it cheap to hedge against a market slump.

“If you are nervous, the market is making it very easy to rent hedges,” Goldman’s trading desk wrote in a note to clients on Monday.

Markets Live Strategist Garfield Reynolds says:

Risk assets look to be getting more complacent about the potential damage from tariffs, despite clear signs from fixed-income markets that the US is facing the potential for stagflation. Investors are noticeably more concerned about inflation now than they were a year ago, with 5-year CPI swaps sitting at 2.68%, up from 2.39% last July.

Yield premiums on Asian investment-grade dollar bonds dropped as much as 1 basis point Friday to hit a new record low, according to a credit trader. Dollar-denominated credit in the region is joining a wider rally in risk assets spurred by easing trade tensions and strong corporate fundamentals.

Treasuries fell Thursday as resilience in the US labor market and interest-rate swaps showed traders slightly pared bets on Fed rate cuts. They are now pricing in 42 basis points of reductions by the end of the year, with the first full cut coming by the October meeting.

“With Trump dialing back the urgency to replace Powell, markets now see a greater chance that the Fed Chair will maintain a hawkish tone at the upcoming meeting,” said Hebe Chen, an analyst at Vantage Markets in Sydney. “The likelihood of faster easing has faded as both political dynamics and economic indicators reinforce a more cautious Fed stance.”

In Japan, the cost of living in Tokyo cooled for a second month on the back of some temporary factors even as food inflation stayed hot. Equity benchmarks in Tokyo retreated as some investors took profit after stocks soared for two days since the country struck a trade deal with the US.

“People are taking profits ahead of a weekend after big gains,” said Masayuki Doshida, senior market analyst at Rakuten Economic Research Institute. “To rise further from here, we would need pretty strong signs that companies are bullish about their earnings.

In Thailand, the stock market dipped 0.6% at the open after the country’s army said clashes with Cambodia continued for a second day. Thailand’s F-16 fighter jets struck military sites in neighboring Cambodia as a dispute between the nations extended.

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 1:33 p.m. Tokyo timeJapan’s Topix fell 0.8%Australia’s S&P/ASX 200 fell 0.5%Hong Kong’s Hang Seng fell 1.1%The Shanghai Composite fell 0.3%Euro Stoxx 50 futures were little changed

Currencies

The Bloomberg Dollar Spot Index rose 0.1%The euro was little changed at $1.1742The Japanese yen fell 0.1% to 147.21 per dollarThe offshore yuan fell 0.2% to 7.1642 per dollar

Cryptocurrencies

Bitcoin fell 2.6% to $115,670.09Ether fell 3.1% to $3,620.7

Bonds

The yield on 10-year Treasuries was little changed at 4.39%Japan’s 10-year yield declined one basis point to 1.585%Australia’s 10-year yield was little changed at 4.35%

Commodities

West Texas Intermediate crude rose 0.2% to $66.18 a barrelSpot gold fell 0.2% to $3,362.33 an ounce

This story was produced with the assistance of Bloomberg Automation.

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