Asian shares slumped, following losses on Wall Street, after better-than-expected US employment data backed the case for the Federal Reserve to keep interest rates elevated and pushed up Treasury yields.
MSCI’s Asia stock benchmark was on course for a technical correction as shares declined more than 1% in Japan and South Korea and Hong Kong stocks slipped at the open. US equity contracts edged lower. New Zealand’s dollar fell after the central bank kept interest rates unchanged and signaled a subdued growth outlook.
The S&P 500 dropped to a four-month low Tuesday and yields on US 10- and 30-year debt climbed to the highest since 2007 after job openings unexpectedly increased. A vote that toppled US House Speaker Kevin McCarthy is likely to further fuel uncertainty after Wall Street’s fear gauge, or VIX, rose to the highest since May.
Wall Street has been speculating rates on longer maturity yields will climb to 5%. Tuesday’s increase in yields stoked anxiety in the credit market, where at least two issuers called off sales. Treasuries extended losses in Asian trading.
Dollar Gains
Bloomberg’s gauge of dollar strength edged up after rising to the highest since November on Tuesday, bolstered by climbing Treasury yields. The yen crept lower after Japan’s top currency official Masato Kanda declined to comment on whether any intervention was conducted on Tuesday following the currency’s decline to the weakest level in a year.
“The subsequent rebound in USD/JPY illustrates how difficult it is to change the path of the exchange rate on a sustained basis,” said Tony Sycamore, a market analyst at IG Australia. “Unless US yields start to fall, the best authorities can hope for is to buy time and to slow the speed of USD/JPY’s rise above 150.”
The yield on Chinese investment-grade dollar credit rose to an 11-month high at 6.51%, having climbed more than 100 basis points from May’s low. Spreads, though, remain well within this year’s range. China is in the midst of a week-long holiday.
Fed Bets
US markets tumbled Tuesday after the number of available job openings rose to 9.61 million in August from less than 9 million the previous month, according to the Bureau of Labor Statistics. The report drove swaps traders to increase wagers on the Fed raising rates in December to greater than 50%.
Atlanta Fed President Raphael Bostic, who does not vote this year, beat the “higher-for-longer” drum Tuesday, saying the central bank needed to keep rates elevated “for a long time.” He forecast a single rate cut for 2024, toward year-end. His comments came after other Fed policymakers who were also hawkish.
“The current environment has a tone of elevated uncertainty and building apprehension that the fourth quarter will offer a true litmus test for whether markets (and implicitly the real economy) are resilient enough to manage persistently elevated borrowing costs,” BMO Capital Markets strategists Ian Lyngen and Ben Jeffery wrote in a note.
The next key data point for the US labor market will be the monthly payrolls print on Friday.
Elsewhere, oil steadied ahead of an OPEC+ review of the global crude market and a weekly update of US stockpiles. Gold was little changed.
Key events this week:
- China has week-long holiday
- Eurozone services and composite PMIs, Wednesday
- ECB President Christine Lagarde gives welcome address at conference, Wednesday
- US ISM services index, Wednesday
- France industrial production, Thursday
- BOE Deputy Governor Ben Broadbent, Riksbank First Deputy Governor Anna Breman participate at panel discussion, Thursday
- US trade, initial jobless claims, Thursday
- San Francisco Fed President Mary Daly speaks at the Economic Club of New York, Thursday
- Germany factory orders, Friday
- US unemployment rate, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.2% as of 10:28 a.m. Tokyo time. The S&P 500 fell 1.4%
- Nasdaq 100 futures fell 0.2%. The Nasdaq 100 fell 1.8%
- Japan’s Topix index fell 1.6%
- Hong Kong’s Hang Seng Index fell 0.4%
- Australia’s S&P/ASX 200 Index fell 0.7%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0469
- The Japanese yen fell 0.1% to 149.24 per dollar
- The offshore yuan was little changed at 7.3249 per dollar
- The Australian dollar was little changed at $0.6303
Cryptocurrencies
- Bitcoin fell 0.3% to $27,314.69
- Ether fell 1.1% to $1,638.31
Bonds
- The yield on 10-year Treasuries advanced three basis points to 4.82%
- Australia’s 10-year yield advanced nine basis points to 4.63%
Commodities
- West Texas Intermediate crude rose 0.1% to $89.34 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Rob Verdonck and Kevin Kingsbury.
