Equity markets in Asia drifted lower after US stocks suffered the biggest slump in six months, while the 10-year Treasury yield touched the highest level in 16 years in a sign investors expect higher US interest rates to endure.
Stocks in Japan, Australia and South Korea fell, weighing on a gauge of the region’s equities. Shares in China, meanwhile, rallied to cap a run of daily declines, led by tech stocks. The Hang Seng Tech index rose more than 1%, with most of its constituents rallying.
US futures ticked slightly higher after the S&P 500 slid 1.6% on Thursday, the most since March, and all major US equity benchmarks slipped below their 100-day moving averages.
Treasury 10-year yields touched 4.5%, the highest level since 2007, extending selling pressure in US government debt Thursday. The Bloomberg dollar index and Australian and New Zealand bond yields also advanced. Rising Treasury yields followed the latest reading on the US labor market, which reinforced the case for the Federal Reserve’s higher-for-longer stance.
Applications for US unemployment benefits fell to the lowest level since January last week, indicating a healthy labor market that continues to support the economy. The Fed on Wednesday held its target range, while updated quarterly projections showed most officials favored another rate hike in 2023.
“On net, it was a solid read from one of the closest to ‘real time’ employment data investors are afforded,” said Ian Lyngen at BMO Capital Markets. “It also marginally increases the chances the Fed hikes in November and certainly reinforces the Fed’s messaging regarding avoiding cuts as long as possible in 2024.”
The yen was little changed after Japan inflation data exceeded estimates, casting doubt on the BOJ’s expectation that price pressures will peak in 2023 and fall back toward the 2% target in coming years. The central bank is due to deliver a policy decision Friday.
Japan’s currency had rallied Thursday on haven bids in US trading, after weakening to a fresh 10-month low near the 150 level earlier in the week. While policymakers are widely forecast to keep monetary stimulus unchanged Friday, remarks that Governor Kazuo Ueda might make on negative rates or correlations between currencies and policy will be closely watched.
Oil traded within a tight range after Russia’s decision to ban exports of diesel-type fuel and gasoline. WTI crude was headed toward its first weekly decline in four.
Read More: Traders on Intervention Watch as Yen Hovers Near 150 to Dollar
Chevron Corp. and labor unions reached an agreement to end strikes at natural gas facilities in Australia. The threat of strike action had roiled global markets for the fuel.
The pound fell after the Bank of England kept rates unchanged for the first time in almost two years. The MSCI Emerging Markets Index of stocks erased its 2023 advance.
Unprecedented Loss
Bond investors’ pain isn’t over yet, even though the Fed is done raising interest rates, said Bill Gross, the former chief investment officer of Pacific Investment Management Co. In an investment outlook, Gross said bond markets are headed for an unprecedented third year of losses, because of sticky inflation and widening deficits.
Former Fed Bank of St. Louis President James Bullard said the central bank may need to raise rates further and hold them higher to guard against the risk of a reacceleration of inflation. Meantime, Former Treasury Secretary Lawrence Summers said policymakers are too optimistic with their latest set of economic projections.
Key events this week:
- China’s Bund Summit, Friday
- Bank of Japan rate decision, Friday
- Eurozone S&P Global Eurozone PMIs, Friday
- US S&P Global Manufacturing PMI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 11:25 a.m. Tokyo time. The S&P 500 fell 1.6%
- Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 1.8%
- Japan’s Topix fell 0.6%
- Australia’s S&P/ASX 200 fell 0.8%
- Hong Kong’s Hang Seng rose 0.6%
- The Shanghai Composite rose 0.4%
- Euro Stoxx 50 futures fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0648
- The Japanese yen was little changed at 147.73 per dollar
- The offshore yuan rose 0.2% to 7.3003 per dollar
Cryptocurrencies
- Bitcoin was little changed at $26,584.75
- Ether rose 0.1% to $1,589.95
Bonds
- The yield on 10-year Treasuries was little changed at 4.50%
- Japan’s 10-year yield declined one basis point to 0.735%
- Australia’s 10-year yield advanced six basis points to 4.36%
Commodities
- West Texas Intermediate crude rose 0.5% to $90.10 a barrel
- Spot gold rose 0.3% to $1,924.98 an ounce
This story was produced with the assistance of Bloomberg Automation.
