Asian equities followed Wall Street lower Thursday as concern over economic growth overshadowed optimism that central banks will slow the pace of interest rate hikes.
(Bloomberg) — Asian equities followed Wall Street lower Thursday as concern over economic growth overshadowed optimism that central banks will slow the pace of interest rate hikes.
Treasuries extended on their rally from the US session amid a notable shift from the recent correlation between bonds and stocks.
Shares in Hong Kong fluctuated, with notable weakness in tech companies, and Japanese shares were decisively lower. Futures for the S&P 500 fluctuated after the benchmark closed down 1.6% Wednesday, the biggest decline in a month.
The retreat for Japanese indexes also reflected upward pressure on the nation’s currency after the central bank left policy settings unchanged Wednesday.
Traders were again focused on the benchmark 10-year Japanese government bond yield amid expectations that it may start creeping back to toward the target ceiling of 0.5% after a sharp drop on Wednesday. It was at 0.415%.
The yen resumed its advance after being whipsawed over the past 24 hours. A gauge of dollar strength traded little changed.
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New Zealand stocks largely shook off news that Prime Minister Jacinda Ardern will step down next month, falling just 0.3%. The nation’s currency was down about the same amount.
Australian stocks erased losses and rallied, while bond yields extended their drop after the nation’s employment unexpectedly fell in December and the jobless rate held unchanged, casting doubt over another interest-rate increase in February.
US Treasury yields had slumped 18 basis points Wednesday, the most in two months, as investors scurried to haven assets. They were down about three basis points in Asia on Thursday. The risk-off moves were driven by gloomy data and break with a prior dynamic where poor economic news has boosted riskier assets on the belief central banks will slow rate hikes.
Data released Wednesday showed US consumers losing steam and business investment falling, heightening concerns that the economy may be moving closer to recession. Producer prices slid by the most since the start of the pandemic and retail sales fell by the most in a year. This didn’t deter Federal Reserve officials reaffirming the need to continue tightening monetary policy.
“This weakness in equity markets will continue a bit longer in this first quarter of the year as the market reprices what the Fed will do,” said Sailesh Jha, chief economist and head of market research for RHB Banking Group in an interview with Bloomberg Television.
Market pricing for the terminal Fed funds rate fell by more than 50 basis points from a day earlier in a sign investors are anticipating a rapid slowdown to Federal Reserve interest rate hikes. Comments from Fed officials Wednesday, however, repeated calls for more hikes even after further signs the economy was softening and inflation cooling.
St. Louis Fed President James Bullard said policy was not yet in restrictive territory and projected a forecast rate of up to 5.5% by the end of the year in the Fed’s dot plot projections. is “almost” in restrictive territory but not quite. Cleveland Fed President Loretta Mester said the Fed needs “keep going” and Philadelphia Fed chief Patrick Harker repeated his view of lifting interest rates in quarter-point increments “going forward.”
Meanwhile, global bond sales so far this year have reached record levels as companies and governments around the world tap investors to raise hundreds of billions of dollars in capital.
Elsewhere in markets, oil fell for a second day as concerns over a US recession deepened and figures pointed to another build in inventories. Gold edged higher.
Key events this week:
- US housing starts, initial jobless claims, Philadelphia Fed index, Thursday
- ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday
- Fed speakers include Susan Collins and John Williams, Thursday
- Japan CPI, Friday
- China loan prime rates, Friday
- US existing home sales, Friday
- IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday
Here are some of the main market moves:
Stocks
- S&P 500 futures fell 0.1% as of 12:46 p.m. Tokyo time. The S&P 500 fell 1.6%
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 fell 1.3%
- The Hang Seng Index rose 0.1%
- Japan’s Topix fell 0.9%
- Australia’s S&P/ASX 200 rose 0.6%
- The Shanghai Composite rose 0.1%
- Euro Stoxx 50 futures fell 0.5%
Currencies
- Bloomberg Dollar Spot Index was little changed at 1,226.86
- The Japanese yen rose 0.5% to 128.28 per dollar
- The offshore yuan was little changed at 6.7698 per dollar
- The Australian dollar fell 0.4% to $0.6915
Bonds
- The yield on 10-year Treasuries declined four basis points to 3.33%
- Japan’s 10-year yield as at 0.415%
- Australia’s 10-year yield declined 21 basis points to 3.34%
Commodities
- West Texas Intermediate crude fell 1.2% to $78.51 a barrel
- Spot gold rose 0.3% to $1,910.58 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Stephen Kirkland.
(An earlier version of this story was corrected to show bond yields fell)
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