(Bloomberg) — Stock and bond trading fell in Asia on Wednesday as traders weighed the impact of a jump in U.S. Treasury yields overnight and comments from the Federal Reserve chairman dampened bets on a Fed rate cut.
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The MSCI Asia-Pacific index fell for a second day, with stocks from Hong Kong to Japan and Australia falling. The sell-off in Australian bonds deepened after inflation figures beat estimates, while Japanese benchmark yields reached their highest levels since 2011.
Treasuries stabilized in Asia after falling on weak US note sales and ahead of the Federal Reserve's preferred rate measure scheduled for later this week. China's yuan fell to its lowest level since November amid signs that policymakers are allowing the currency to depreciate against a resilient dollar. Emerging Asian currencies, including the South Korean won and the Malaysian ringgit, also weakened.
“The early reaction is rising US interest rates and resilient US consumer confidence data reinforcing the risks of interest rates remaining high for longer,” said Shen Yao Ng, investment director at Abrdn. “This is generally negative for Asia because it supports the strength of the dollar compared to the Asian currency.”
The yen stabilized near its lowest level in 16 years against the pound sterling. The Japanese currency is sliding faster against the euro than against the dollar as speculation grows that the European Central Bank will slow down on cutting interest rates because inflation remains high.
Oil extended gains as another attack in the Red Sea exacerbated geopolitical tensions in the Middle East ahead of the OPEC+ meeting at the weekend. West Texas Intermediate crude rose above $80 a barrel, while Brent crude futures advanced 0.4%.
“The rise in oil prices and rising bond yields in both the US and Japan are likely to lead to a softer start to today’s trading session in Asia,” said Tony Sycamore, market analyst at IG Australia in Sydney.
In corporate news, Lenovo Group said it plans to sell $2 billion in zero-coupon convertible bonds to Saudi Arabia's sovereign wealth fund, the latest Chinese company to seek capital through such an issuance within days.
Federal interest rates
As Wall Street returns from the weekend, the “T+1” rule comes into effect – making US stocks settle in one day instead of two.
Investors also took issue with comments from the Fed's Kashkari, who said the central bank's policy stance was restrained, but officials did not completely rule out additional rate hikes.
Bond traders stuck in the waiting game over federal funds rate policy may get some welcome support soon.
Starting Wednesday, for the first time since the early 2000s, the Treasury Department will launch a series of buybacks targeting older, harder-to-trade debt. Then in June, the US central bank is scheduled to begin gradually reducing the pace of unwinding its balance sheet, known as quantitative tightening, or QT.
The Fed's first measure of inflation is about to show some modest relief from stubborn price pressures, reinforcing central bankers' caution about the timing of interest rate cuts.
Economists expect the personal consumption expenditures minus food and energy price index – due for release on Friday – to rise 0.2% in April. This would mark the smallest advance so far this year for the measure, which provides a better snapshot of core inflation.
The swaps are currently pricing in about 30 basis points of Fed rate cuts for all of 2024 – the equivalent of one cut where the Fed's moves have historically been 25 basis point increments.
Main events this week:
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German Consumer Price Index, Wednesday
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Fed Beige Book, Wednesday
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The Fed's John Williams speaks on Wednesday
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Eurozone economic confidence, unemployment, consumer confidence, Thursday
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US Initial Jobless Claims, GDP, Wholesale Inventories, Thursday
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The Fed's John Williams and Lori Logan speak on Thursday
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Unemployment in Japan, CPI in Tokyo, industrial production, retail sales, Friday
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China's official manufacturing and non-manufacturing PMI, Friday
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Eurozone consumer price index, Friday
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US consumer income, spending, personal consumption expenditures deflator, Friday
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The Fed's Rafael Bostic speaks on Friday
Some key movements in the markets:
Stores
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S&P 500 futures were down 0.3% as of 11:56 a.m. Tokyo time.
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Nikkei 225 futures fell 0.3%
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Japan's Topix index fell 0.3%.
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Australia's S&P/ASX 200 index fell 1.3%.
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The Hang Seng Index in Hong Kong fell by 1.4%.
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The Shanghai Composite Index rose 0.2%.
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Euro Stoxx 50 futures were little changed
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Nasdaq 100 futures fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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There was little change in the euro at $1.0847
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There was little change in the Japanese yen at 157.30 to the dollar
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There was little change in the yuan in external transactions at 7.2649 to the dollar
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There was little change in the Australian dollar at 0.6647 US dollars
Digital currencies
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Bitcoin rose 0.6% to $68,626.54
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Ethereum rose 0.5% to $3,845.85
Bonds
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The yield on 10-year Treasury bonds was little changed at 4.56%.
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The 10-year Japanese bond yield rose three basis points to 1.065%.
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The yield on Australian 10-year bonds rose by 15 basis points to 4.41%.
Goods
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West Texas Intermediate crude rose 0.3% to $80.10 a barrel
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Gold in spot transactions fell 0.3 percent to $2,354.60 per ounce
This story was produced with assistance from Bloomberg Automation.
-With assistance from Rob Verdonk.
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