Equity markets in Asia are poised to gap lower after US stocks suffered the biggest drop in six months.
(Bloomberg) — Equity markets in Asia are poised to gap lower after US stocks suffered the biggest drop in six months.
Futures for indexes in Japan, Hong Kong and Australia all pointed to declines, extending weekly losses. The S&P 500 fell 1.6% on Thursday, the most since March, and all major US equity benchmarks broke below their key 100-day moving averages. Treasury 10-year yields rose and the dollar strengthened as the latest reading on the labor market reinforced the case for the Federal Reserve’s higher-for-longer stance.
Applications for US unemployment benefits fell to the lowest level since January last week, indicating a healthy labor market that continues to support the economy. The Fed on Wednesday held its target range, while updated quarterly projections showed most officials favored another rate hike in 2023.
“On net, it was a solid read from one of the closest to ‘real time’ employment data investors are afforded,” said Ian Lyngen at BMO Capital Markets. “It also marginally increases the chances the Fed hikes in November and certainly reinforces the Fed’s messaging regarding avoiding cuts as long as possible in 2024.”
The yen rallied on haven bids in US trading ahead of a Bank of Japan policy decision, after weakening to a fresh 10-month low near the 150 level that some analysts consider to be a trigger for intervention. While policymakers are widely expected to keep monetary stimulus unchanged Friday, remarks that Governor Kazuo Ueda might make on negative rates or correlations between currencies and policy will be closely watched.
Read More: Traders on Intervention Watch as Yen Hovers Near 150 to Dollar
The pound fell after the Bank of England kept rates unchanged for the first time in almost two years. The MSCI Emerging Markets Index of stocks erased its 2023 advance. Oil steadied as the broad, risk-off sentiment eroded gains driven by a Russian ban on gasoline and diesel exports, and is set for its first weekly drop this month.
Bond traders are bracing for Treasury yields to keep pushing higher after the Fed signaled it’s likely to hold interest rates at lofty levels well into next year.
Fifty-eight percent of the 172 respondents in the Bloomberg Markets Live Pulse survey conducted after the Fed’s decision said that two-year Treasury yields have yet to peak, while a plurality expect 10-year yields to climb over 4.5%.
Bond investors’ pain isn’t over yet, even though the Fed is done raising interest rates, said Bill Gross, the former chief investment officer of Pacific Investment Management Co.
In an investment outlook, Gross said bond markets are headed for an unprecedented third year of losses, because of sticky inflation and widening deficits, a result of government fiscal spending he equates with throwing “money out of a helicopter.”
Former Fed Bank of St. Louis President James Bullard said the central bank may need to raise rates further and hold them higher to guard against the risk of a reacceleration of inflation. Meantime, Former Treasury Secretary Lawrence Summers said policymakers are too optimistic with their latest set of economic projections, cautioning that they are at risk of being surprised by both faster inflation and weaker growth than they anticipate.
James Zelter, co-president of Apollo Global Management Inc., is “skeptical” the economy will achieve a soft landing, saying the effects of tighter monetary policy from central banks still haven’t been fully felt.
Key events this week:
- China’s Bund Summit, Friday
- Japan CPI, PMIs, Friday
- Bank of Japan rate decision, Friday
- Eurozone S&P Global Eurozone PMIs, Friday
- US S&P Global Manufacturing PMI, Friday
Some of the main moves in markets:
- S&P 500 futures were little changed as of 7:08 a.m. Tokyo time. The S&P 500 fell 1.6%
- Nasdaq 100 futures were little changed. The Nasdaq 100 fell 1.8%
- Hang Seng futures fell 0.5%
- Australia’s S&P/ASX 200 futures fell 1.4%
- Nikkei 225 futures fell 1.3%
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was unchanged at $1.0661
- The yen was little changed at 147.55 per dollar
- The offshore yuan was little changed at 7.3143 per dollar
- Bitcoin was little changed at $26,576.13
- Ether fell 0.2% to $1,585.64
- The yield on 10-year Treasuries advanced nine basis points to 4.49%
- West Texas Intermediate crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
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