Asian Shares Decline as Bonds Extend Selloff: Markets Wrap

By Investor Empires On Oct 22, 2024

(Bloomberg) — Asian stocks fell for a second day along with bonds, as traders consider tempering expectations of interest rate cuts from the Federal Reserve for the rest of the year.

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The MSCI AC Asia-Pacific Index fell as much as 1.1% as benchmark indices in Australia and Japan fell while Chinese markets struggled to find direction. This is after US stocks fell from nearly overbought levels, following a relentless advance to all-time highs.

10-year Treasury yields jumped 11 basis points to 4.20% on Monday, after Kansas City Fed President Jeffrey Schmid said he favored a slower pace of interest rate cuts given uncertainty about how far the U.S. central bank will eventually cut. Interest rates. . Bonds from Australia and New Zealand fell.

The risk of a slowdown in the pace of interest rate cuts “will have a positive impact on the dollar, as it is typically a headwind for Asian stocks,” said Kieran Calder, head of equity research at Union Banker Privy in Singapore.

Several factors, including supply concerns and better U.S. economic data, are driving the bond sell-off, Chris Weston, head of research at Pepperstone Group Ltd, wrote in a note. He added that bets on the US elections are also affecting the market, with traders taking the risk of a “red sweep,” referring to the possibility of Republicans taking control of the White House and Congress.

A presidential win for Donald Trump will raise concerns that his support for looser fiscal policy and steep tariffs will deepen the federal deficit and spike inflation, undermining Treasuries.

The chances of Federal Reserve officials leaving interest rates unchanged in November are increasing as the U.S. economy advances, according to Torsten Slok, chief economist at Apollo Global Management.

Asian stock markets are bracing for their busiest week of listings in more than two years, representing a crucial test of demand as companies rush to raise money ahead of the US election. Shares of Hyundai Motor India Ltd. are set to begin trading in Mumbai on Tuesday after raising $3.3 billion in the largest-ever initial public offering in the South Asian country. In Japan, Tokyo Metro’s $2.3 billion stock is scheduled to list on October 23.

“Soft US markets are not typically a good environment for Asia, where there are also a number of IPOs this week that will test retail and institutional demand,” Calder said.

Meanwhile, traders will continue to monitor Beijing’s efforts to boost growth in its faltering economy through stimulus. Central Huijin Investment Co., Ltd., a unit of China’s sovereign wealth fund, which has sometimes bought shares to stabilize the stock market, issued bonds that pushed its total domestic debt sales this year to a record high.

Chinese banks on Monday cut benchmark lending rates after the central bank eased them in September, as part of a series of measures aimed at halting the housing market’s decline.

“The real question is to what extent this stimulus can be translated into an easing of financial conditions such that it creates a permanent increase in demand,” Jim Caron, CIO of Morgan Stanley’s Investment Management Solutions Group, said on Bloomberg TV.

Japanese traders are monitoring the run-up to the elections scheduled for the end of next week. Support for Prime Minister Shigeru Ishiba’s ruling coalition continues to wane, suggesting the vote could lead to a weak and unstable administration.

Currency markets remain in a state of tension with the yen weakening against the dollar overnight and approaching the 151 yen per dollar level.

US profits

Wall Street faces a major earnings hurdle this week, with nearly 20% of S&P 500 companies scheduled to report, with traders bracing for key results from Tesla Inc. To Boeing Co. and United Parcel Service Inc.

The latest Bloomberg Markets Live Pulse poll shows that respondents view U.S. corporate results as more important to stock market performance than who wins the November election or even the course of Federal Reserve policy.

Nvidia Corp. hit a record high, with the Nasdaq 100 up 0.2%. The Russell 2000 index fell 1.6%. Home builders stumbled. United Parcel Service sank on a sell recommendation at Barclays Plc. Boeing shares rose after a preliminary agreement with its workers union.

“Because the stock market is expensive (especially on a price/sales basis), it is more vulnerable than usual when these types of political and geopolitical issues have become a major concern in the past,” said Matt Maley of Miller Tabak.

Gold stabilized, after hitting a record high in the previous session, as traders digested Federal Reserve officials’ views on US interest rates. Oil fell moderately after rising nearly 2% on Monday amid tensions in the Middle East.

Main events this week:

Christine Lagarde, President of the European Central Bank, gave an interview to Bloomberg TV on Tuesday
Andrew Bailey of the Bank of England, Klas Knott of the European Central Bank and Robert Holzman will speak at the Bloomberg Global Regulatory Forum in New York, Tuesday.
Philadelphia Federal Reserve Bank President Patrick Harker speaks Tuesday
Interest rate decision in Canada, Wednesday
Consumer confidence in the euro zone, Wednesday
US Existing Home Sales, Wednesday
Boeing, Tesla and Deutsche Bank earnings on Wednesday
Fed Beige Book, Wednesday
US New Home Sales, Unemployment Claims, and Global S&P Manufacturing and Services Purchasing Managers’ Index, Thursday
UBS, Barclays earnings, Thursday
The Fed’s Beth Hammack speaks Thursday
US Durable Goods, University of Michigan Consumer Confidence, Friday

Some key movements in the markets:

Stocks

S&P 500 futures were down 0.1% as of 11:22 a.m. Tokyo time.
Japan’s Topix index fell 1%.
Australia’s S&P/ASX 200 index fell 1.4%.
The Hang Seng Index in Hong Kong rose 0.3%.
The Shanghai Composite Index rose 0.3%.
Euro Stoxx 50 futures rose 0.2%

Currencies

The Bloomberg Dollar Spot Index was little changed
There was little change in the euro at $1.0819
There was little change in the Japanese yen at 150.76 to the dollar
There was little change in the yuan in external transactions at 7.1344 to the dollar

Cryptocurrencies

Bitcoin fell 0.2% to $67,558.6
Ethereum fell 0.9% to $2,649.58

Bonds

The yield on 10-year Treasury bonds was little changed at 4.19%.
The yield on 10-year Japanese bonds rose two basis points to 0.975%.
The yield on Australian 10-year bonds rose by 10 basis points to 4.37%.

Goods

West Texas Intermediate crude fell 0.4% to $70.27 a barrel
Spot gold rose 0.3 percent to $2,729.13 per ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from Jason Scott, Winnie Hsu and Abhishek Vishnoi.