Shares in Asia fell after Jerome Powell warned interest rates may have to climb further, stunting a rally in stocks and bonds and sending investors back to the dollar.
Equities declined in major gauges across the region, tracking a drop for the S&P 500 on Thursday. The US benchmark slipped 0.8%, ending eight days of gains — its best run since 2021. US stock futures edged lower Friday.
Treasuries steadied in Asia after tumbling Thursday to undo part of this week’s sharp rally, with the spike in yields the largest for the longer tenors. A weak sale of 30-year notes weighed on sentiment, raising concern about the market’s ability to absorb new debt.
Federal Reserve Chair Powell said officials won’t hesitate to tighten policy further if needed. While that’s essentially what several Fed speakers have been saying, it’s the part that drew investors attention Thursday — especially after a rally in both equities and bonds. Traders priced in slightly higher odds of an additional hike, while pushing back the first anticipated 25-basis point rate cut to July from June.
Powell’s comments were “clearly more hawkish than traders were positioned for,” said Matt Simpson, senior market analyst at City Index. “As yields have seen a decent pullback these past couple of weeks, their sharp rise on Thursday suggests a cycle low has been seen and that is weighing on risk today.”
The Bloomberg dollar index held gains in Asia after rising by the most since early October on Thursday. The Aussie dollar led declines among a Group-of-10 peers, after the nation’s central bank said it sees inflation only returning to the top of its 2-3% target by end-2025, underscoring its decision to resume raising interest rates this week. The yen traded above 151 per dollar.
Powell’s “sterner tone” suggests an effort to lean against further easing of financial conditions, hold rate cut expectations at bay and keep open the option of hiking further, according to Krishna Guha, vice chairman and head of central bank strategy for Evercore ISI.
In China, new lending and money supply data may be released as soon as Friday. Investors will also gauge the impact of a cyberattack on the Industrial & Commercial Bank of China Ltd. that prevented the lender from clearing trades. Elsewhere, Japan money stock data for October came in line with the prior month.
Bitcoin topped $36,000, climbing past Terra crash level, in a win for bruised bulls. West Texas Intermediate edged lower, partly undoing a Thursday rally, to trade just below $76 per barrel. Gold was little changed.
Key events this week:
- ECB President Christine Lagarde participates in fireside chat, Friday
- US University of Michigan consumer sentiment, Friday
- Dallas Fed President Lorie Logan and her Atlanta counterpart Raphael Bostic speak, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 10:56 a.m. Tokyo time. The S&P 500 fell 0.8%
- Nasdaq 100 futures were down 0.1%. The Nasdaq 100 fell 0.8%
- Japan’s Topix fell 0.6%
- Australia’s S&P/ASX 200 fell 0.5%
- Hong Kong’s Hang Seng fell 1.6%
- The Shanghai Composite fell 0.6%
- Euro Stoxx 50 futures fell 0.8%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0674
- The Japanese yen was little changed at 151.25 per dollar
- The offshore yuan was little changed at 7.2977 per dollar
- The Australian dollar was little changed at $0.6362
Cryptocurrencies
- Bitcoin rose 0.3% to $36,659.14
- Ether rose 2.4% to $2,108.11
Bonds
- The yield on 10-year Treasuries was little changed at 4.62%
- Japan’s 10-year yield advanced 2.5 basis points to 0.855%
- Australia’s 10-year yield advanced nine basis points to 4.62%
Commodities
- West Texas Intermediate crude fell 0.1% to $75.64 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
