US futures declined along with Asian equities Thursday as Treasury yields continued to edge higher following another round of hawkish comments by Federal Reserve officials.
(Bloomberg) — US futures declined along with Asian equities Thursday as Treasury yields continued to edge higher following another round of hawkish comments by Federal Reserve officials.
Euro Stoxx 50 contracts were little changed ahead of European inflation data due later in the day.
The rate on benchmark 10-year US government debt consolidated above 4% during Asian trading, weighing on shares from Tokyo to Hong Kong and Mumbai. Hong Kong-listed Chinese technology companies were among the hardest hit, sliding more than 1.5%, after a sharp rally on Wednesday.
Swaps markets are now pricing in a peak US policy rate of 5.5% in September, with some traders betting it may reach 6%. That’s damping appetite for risk taking in markets around the world, even as China offers hope with its economy recovering markedly after Beijing abandoned its Covid-zero policy.
China’s successful reopening is a much-needed bright spot for investors but in terms of inflation “adds cyclical upside pressure because of the sheer amount of demand” that it brings, especially in commodities, Charu Chanana, senior markets strategist at Saxo Capital Markets, said on Bloomberg Television.
Yields on Australian and New Zealand government bonds advanced across the 2-year to 10-year maturities in moves that largely tracked Treasuries in the US session.
The dollar rose against its Group-of-10 counterparts, with the currencies of raw materials and energy exporters like Australia, New Zealand and Norway showing the biggest falls.
The offshore yuan weakened after being one of the most notable gainers versus the dollar Wednesday, when it rallied more than 1% in its largest advance since November.
The trigger for higher yields was Fed officials on Wednesday reinforcing their hawkish stance. Atlanta Fed’s Raphael Bostic called for continued rate hikes to above 5% to make sure inflation doesn’t pick up again. Minneapolis Fed President Neel Kashkari, meanwhile, said he’s concerned that there isn’t much of an indication that the central bank’s rate hikes are slowing down the services sector.
Yield Curve
At above 4% yield, the 10-year Treasury undoubtedly offers a good income although the shorter-end of the curve would be a better investment choice during the current environment. according to Isaac Poole, global chief investment officer of Oreana Financial Services.
He expects further steepening of the yield curve and told Bloomberg Television that this would be “the big trade” over the next 12 months.
Oil was slightly lower after a two-day gain as traders weighed the potential revival in Chinese demand against concerns over tighter US monetary policy. Gold was down marginally after a three-day advance.
Key events this week:
- Eurozone CPI, unemployment, Thursday
- US initial jobless claims, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.4% as of 6:43 a.m. London time. The S&P 500 fell 0.5%
- Nasdaq 100 futures fell 0.5%. The Nasdaq 100 fell 0.9%
- Japan’s Topix index fell 0.2%
- Hong Kong’s Hang Seng Index fell 0.8%
- China’s Shanghai Composite Index fell 0.1%
- Australia’s S&P/ASX 200 Index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to $1.0643
- The Japanese yen fell 0.3% to 136.63 per dollar
- The offshore yuan fell 0.4% to 6.9039 per dollar
- The Australian dollar fell 0.3% to $0.6741
- The offshore yuan fell 0.4% to 6.9039 per dollar
- The British pound fell 0.3% to $1.1993
Cryptocurrencies
- Bitcoin fell 0.4% to $23,461.03
- Ether fell 0.6% to $1,647.17
Bonds
- The yield on 10-year Treasuries advanced three basis points to 4.02%
- Australia’s 10-year yield advanced seven basis points to 3.86%
Commodities
- West Texas Intermediate crude fell 0.2% to $77.52 a barrel
- Spot gold fell 0.2% to $1,833.65 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rheaa Rao and Tassia Sipahutar.
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