Asian stocks struggled Thursday in the wake of a slump on Wall Street after Treasury Secretary Janet Yellen rattled bank shares and the Federal Reserve pushed back against bets for interest rate cuts this year.
(Bloomberg) — Asian stocks struggled Thursday in the wake of a slump on Wall Street after Treasury Secretary Janet Yellen rattled bank shares and the Federal Reserve pushed back against bets for interest rate cuts this year.
Benchmark indexes fell in Japan, South Korea and Australia while a gauge of US-listed Chinese companies fell earlier. Weakness in the dollar may help some assets in Asia, particularly in emerging markets. US equity futures edged higher in a sign of moderation.
Government bond yields in the region opened lower, with drops approaching 10 basis points in Australia following sharper moves down in rates on Treasuries Wednesday. US yields opened fractionally higher Thursday.
“Asian markets will likely take the lead from the US, so bonds up, stocks down, although the weakness in Asian equities might be tempered by a weaker US dollar,” said Chamath De Silva, a portfolio manager at BetaShares Holdings Pty. “So we’re heading into the Asian open with a clear risk-off tone.”
US traders got a double dose of stress on Wednesday that reversed an initial rally in shares following the Fed’s expected 25-basis-point rate hike. Yellen told lawmakers that the government wasn’t considering “blanket” deposit insurance to stabilize the banking system while Fed chief Jerome Powell said he was prepared to keep raising rates until inflation shows signs of cooling.
In a broad-based selloff, the S&P 500 dropped 1.7%. All 22 stocks in the KBW Bank Index retreated, with the measure of US financial heavyweights down almost 5%. Treasury two-year yields plunged 23 basis points to 3.94%. A dollar gauge retreated for a fifth straight day — its longest losing streak since April 2021. The greenback held most of that move in early Asian trading Thursday.
While markets are in a “higher volatility regime,” a degree of calm may come later Thursday, said John Bromhead, a strategist at Australia & New Zealand Banking Group. “I suspect now the major risk event is out of the way, risk-tone can improve through the day,” he said.
The swap market shows about a one-in-two chance that Fed officials will add another 25 basis points to their benchmark in May. Despite this and Powell’s guidance, expectations for cuts deepened, with the market suggesting that the effective fed funds rate will drop to around 4.2% in December.
“I would not expect the market to take these rate cuts out in the near term and could very well price in more cuts if the data deteriorates from here,” Matthew Hornbach, global head of macro strategy at Morgan Stanley, told Bloomberg Television.
Powell himself, though, said in response to questioning that officials “just don’t” see cuts this year and that they will raise higher than expected if that is needed. “Rate cuts are not in our base case,” he said.
Key events this week:
- Eurozone consumer confidence, Thursday
- BOE interest rate decision, Thursday
- Swiss National Bank rate decision and press conference, Thursday
- US new home sales, initial jobless claims, Thursday
- US Treasury Secretary Janet Yellen testifies to a House Appropriations subcommittee, Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 9:04 a.m. Tokyo time. The S&P 500 fell 1.7%.
- Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 1.4%
- Japan’s Topix fell 1%
- South Korea’s Kospi fell 0.7%
- Australia’s S&P/ASX 200 Index fell 0.9%
- Hang Seng Index futures rose 0.8%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.0873
- The Japanese yen rose 0.2% to 131.17 per dollar
- The offshore yuan was little changed at 6.8581 per dollar
- The Australian dollar rose 0.2% to $0.6698
Cryptocurrencies
- Bitcoin fell 0.2% to $27,346.03
- Ether was little changed at $1,739.2
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.45%
- Australia’s 10-year yield declined eight basis points to 3.29%
Commodities
- West Texas Intermediate crude fell 1.1% to $70.09 a barrel
- Spot gold rose 0.1% to $1,972.21 an ounce
This story was produced with the assistance of Bloomberg Automation
–With assistance from Rita Nazareth, Matthew Burgess and Georgina Mckay.
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