Asian equities are poised to fall Wednesday after the S&P 500 tumbled by the most in two months and Treasury yields rose sharply as investors price in higher interest rates.
(Bloomberg) — Asian equities are poised to fall Wednesday after the S&P 500 tumbled by the most in two months and Treasury yields rose sharply as investors price in higher interest rates.
Futures contracts for share benchmarks in Australia, Japan and Hong Kong fell. The S&P 500 tumbled 2% on Tuesday in a decline that touched all major sectors, while the tech-heavy Nasdaq 100 dropped 2.4%. Weak forecasts from US retailing bellwethers added to the negative tone.
Selling in Treasuries pushed the 10-year yield 14 basis points higher to 3.95%. Similar maturity bonds in Australia and New Zealand saw yields climb about 10 basis points in early Asian trading.
The dollar held its overnight rally against G-10 currencies as trading got underway in the region. Purchasing managers’ index readings for services and manufacturing that came in stronger than expected underpinned gains in Treasury yields and the currency.
The New Zealand dollar was about 0.2% lower versus the greenback ahead of a policy decision from the central bank, which is expected to downshift to a 50 basis point rate hike.
The action in the US marked a shift in perception on rates. Investors are pricing in the federal funds rate climbing to around 5.3% in June. That compares with a perceived peak of 4.9% just three weeks ago and follows a ratcheting up of rhetoric from central bank officials over the past week.
“A tight labor market and resilient consumer demand could goad the Federal Reserve to maintain its rate hiking campaign into the summertime,” said Jeffrey Roach, chief economist for LPL Financial. “Investors should expect volatility until markets and central bankers come to agreement on the expected path for interest rates.”
In Tuesday results, Home Depot Inc. cautioned of lower profits ahead, while Walmart Inc. warned about the effects of rising economic uncertainty, further chilling investor sentiment.
A rocky geopolitical outlook has not helped. President Vladimir Putin said Russia will suspend its observation of the New START nuclear weapons treaty with the US, a decision Secretary of State Antony Blinken called “irresponsible.” President Joe Biden hit back at Putin, saying he would never win his war in Ukraine.
The White House said it would be open to sanctioning Chinese companies that support Russia’s invasion of Ukraine, Deputy Treasury Secretary Wally Adeyemo said.
Elsewhere, oil prices fell Tuesday, dragging West Texas Intermediate down 0.2% and Brent, the international benchmark, down about 1.6%, curtailing a recent rally on the hopes of growing Chinese demand.
Key events this week:
- US MBA mortgage applications, Wednesday
- Federal Reserve releases minutes from its latest policy meeting, Wednesday
- Eurozone CPI, Thursday
- US GDP, initial jobless claims, Thursday
- Atlanta Fed President Raphael Bostic speaks, Thursday
- BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
- US PCE deflator, personal spending, new home sales, University of Michigan consumer sentiment, Friday
- Russia’s invasion of Ukraine hits the one-year mark, Friday
Some of the main moves in markets as of 7:20 a.m. Tokyo time:
Stocks
- Nikkei 225 futures fell 0.7%
- Hang Seng futures fell 0.3%
- S&P/ASX 200 futures fell 0.6%
- The S&P 500 fell 2% Tuesday
- The Nasdaq 100 fell 2.4% Tuesday
Currencies
- The Bloomberg Dollar Spot Index rose 0.3% Tuesday
- The euro was little changed at $1.0649
- The Japanese yen was little changed at 134.94 per dollar
- The offshore yuan was little changed at 6.8895 per dollar
- The Australian dollar was little changed at $0.6856
Cryptocurrencies
- Bitcoin rose 0.3% to $24,271.7
- Ether rose 0.2% to $1,646.03
Bonds
- The yield on 10-year Treasuries advanced 14 basis points to 3.95% on Tuesday
- Australia’s 10-year yield advanced 10 basis points to 3.91%
Commodities
- West Texas Intermediate crude fell 0.2% to $76.15 a barrel on Tuesday
- Spot gold fell 0.3% to $1,835.09 an ounce on Tuesday
This story was produced with the assistance of Bloomberg Automation.
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