A selloff in Asian shares deepened, as investors fretted over higher Treasury yields and escalating tensions in the Middle East.
(Bloomberg) — A selloff in Asian shares deepened, as investors fretted over higher Treasury yields and escalating tensions in the Middle East.
Yields on 10-year US government bonds gained for a fourth day, rising three basis points in Asia, and led an advance across the region. Federal Reserve Bank of New York President John Williams said interest rates will have to stay at restrictive levels “for some time” to bring inflation back to the central bank’s target.
Stock benchmarks from Tokyo to Hong Kong, Sydney and mainland China all dropped well over 1%. Oil slid after an earlier rally with the US suspending some sanctions on Venezuelan output. Safe-haven demand boosted gold, delivering a gain of more than 4% in the past five days.
Oil’s rally Wednesday came as Iran intensified its rhetoric against Israel after an explosion at a Gaza hospital that complicated diplomatic efforts to rein in the Middle East conflict. United Airlines Holdings Inc. tumbled almost 10% after warning the Israel-Hamas war and higher jet fuel costs would weigh on earnings. UK Prime Minister Rishi Sunak is set to visit Israel on Thursday.
“There is portfolio de-risking, probably raising cash in anticipation of escalating geopolitical risks in the Middle East from Israel’s potential ground invasion of the Gaza strip and potential violent retaliation against Israel,” said Alan Richardson, portfolio manager at Samsung Asset Management.
The dollar was steady, after gaining over the last two sessions.
Elsewhere in currencies, the yen slightly strengthened as Japan’s exports rose more than expected in September. Traders are preparing for turbulent trading in the currency amid growing concerns that Japanese authorities will intervene. A former Bank of Japan board member said the central bank may scrap negative interest rates by the end of this year.
The Aussie dollar edged lower following soft jobs data. Elsewhere, the Malaysian ringgit fell to a 25-year low weighed partly by the dollar’s recent gains.
Contracts for US equities edged lower in Asia after the S&P 500 slumped 1.3% on Wednesday. Morgan Stanley sank the most since 2020 as profit fell on an investment-bank slowdown while Netflix rallied post-market after strong earnings.
Treasury yields remain at multidecade highs with Fed Governor Christopher Waller noting policymakers can wait and gather more data before deciding if the economy needs further monetary restraint.
“A reiteration of the ‘higher for longer’ message on interest rates may allow US yields to stay at or above their current levels and keep the dollar supported,” said Carol Kong, a strategist at Commonwealth Bank of Australia.
Still, elevated yields are attracting buyers, with a 20-year auction seeing its yield lower than indicated pre-auction trading, helping cap a rise in long-dated yields. Fed Chair Jerome Powell is set to speak at the Economic Club of New York on Thursday.
In Asia, investors will be monitoring distressed Chinese builder Country Garden Holdings Co., which is set for a first-ever default as a grace period ends for dollar-bond interest.
Key events this week:
- US initial jobless claims, existing home sales, leading index, Thursday
- Federal Reserve Chair Jerome Powell, Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Dallas Fed President Lorie Logan speak at different events, Thursday
- Japan CPI, Friday
- China loan prime rates, Friday
- Philadelphia Fed President Patrick Harker speaks, Friday
Some of the main moves in markets:
- S&P 500 futures fell 0.1% as of 11:52 a.m. Tokyo time. The S&P 500 fell 1.3%
- Nasdaq 100 futures were little changed. The Nasdaq 100 fell 1.4%
- Japan’s Topix fell 1.5%
- Australia’s S&P/ASX 200 fell 1.5%
- Hong Kong’s Hang Seng fell 1.7%
- The Shanghai Composite fell 0.8%
- Euro Stoxx 50 futures fell 0.5%
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0537
- The Japanese yen was little changed at 149.83 per dollar
- The offshore yuan was little changed at 7.3250 per dollar
- Bitcoin fell 0.2% to $28,212.56
- Ether fell 0.9% to $1,547.87
- The yield on 10-year Treasuries advanced three basis points to 4.95%
- Australia’s 10-year yield advanced 11 basis points to 4.76%
- West Texas Intermediate crude fell 0.4% to $87.98 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Ishika Mookerjee.
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