US equity futures rose and shares in Asia erased earlier declines Friday in a sign of steadying risk sentiment as investors adapt to the prospect interest rates will remain higher for longer.
(Bloomberg) — US equity futures rose and shares in Asia erased earlier declines Friday in a sign of steadying risk sentiment as investors adapt to the prospect interest rates will remain higher for longer.
Gains for US contracts followed the worst day for the S&P 500 since March on Thursday as the index dropped 1.6%, while the tech-heavy Nasdaq 100 fell 1.8%. Europe equity futures fell.
In Asia, a region-wide equity index retraced early declines as benchmarks in Japan, Australia and South Korea trimmed morning losses. Chinese stocks rallied to cap a run of daily declines with tech particularly well bid. The Hang Seng Tech index gained as much as 2.6%.
The advance for Chinese stocks likely reflects “short covering on expectations of more policy support measures over the weekend, just like the government’s moves in every weekend this month,” said Steven Leung, an executive director at Uob Kay Hian Hong Kong Limited. Still, while “economic figures have shown some improvement, investor confidence remains weak,” he said.
The Bloomberg dollar index steadied, while the yen weakened after the Bank of Japan held interest rates, its 10-year yield target and forward guidance unchanged. The central bank reiterated its expectation that inflation is decelerating. Earlier, consumer price data exceeded estimates, casting doubt on the BOJ’s expectation that price pressures will peak in 2023 and fall back toward the 2% target in coming years.
Treasury yields were broadly flat after initially rising on the long end of the curve in Asian trading, pushing the 10-year yield to 4.5%, the highest level since 2007. Rising Treasury yields on Thursday followed the latest reading on the US labor market, which 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.”
India’s 10-year bond yield fell 7 basis points after JPMorgan Chase & Co. said it will include the country’s sovereign debt in its benchmark emerging-markets index, a move expected to draw heightened inflows from global investors.
Oil rose, in part supported by news that Russia would ban exports of diesel-type fuel and gasoline. Chevron Corp. and labor unions reached an agreement to end strikes at natural gas facilities in Australia. The threat of strike action had roiled global markets for the fuel.
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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.
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.
Key events this week:
- China’s Bund Summit, 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 rose 0.2% as of 2:38 p.m. Tokyo time. The S&P 500 fell 1.6%
- Nasdaq 100 futures rose 0.3%. The Nasdaq 100 fell 1.8%
- Japan’s Topix was little changed
- Australia’s S&P/ASX 200 fell 0.2%
- Hong Kong’s Hang Seng rose 1%
- The Shanghai Composite rose 0.8%
- Euro Stoxx 50 futures fell 0.2%
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0652
- The Japanese yen fell 0.3% to 148.03 per dollar
- The offshore yuan was little changed at 7.3087 per dollar
- Bitcoin was little changed at $26,614.56
- Ether rose 0.2% to $1,591.48
- The yield on 10-year Treasuries was little changed at 4.50%
- Japan’s 10-year yield was unchanged at 0.740%
- Australia’s 10-year yield advanced six basis points to 4.36%
- West Texas Intermediate crude rose 0.7% to $90.28 a barrel
- Spot gold rose 0.2% to $1,924.17 an ounce
This story was produced with the assistance of Bloomberg Automation.
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