(Bloomberg) — Asian equities fell Wednesday after the S&P 500 tumbled by the most in two months and Treasury yields rose sharply as investors priced in higher interest rates.
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Shares in Australia, Japan and mainland China fell, while Hong Kong’s Hang Seng Index fluctuated after falling earlier in the day to levels that would mark a 10% correction from its late-January high.
US futures were up marginally after the S&P 500 tumbled 2% on Tuesday in a decline that touched all major sectors, while the tech-heavy Nasdaq 100 dropped 2.4%. Weak forecasts from US retailing bellwethers added to the negative tone.
The benchmark 10-year Treasury yield slipped marginally after rising 14 basis points Tuesday. Australian yields trimmed their gains after weaker-than-expected wages growth data, which also weighed on the Australian dollar.
The yield on 10-year Japanese government debt touched 0.505%, breaching the Bank of Japan’s threshold for a second day as traders prepared to hear from the new central bank governor nominee.
The New Zealand dollar edged higher versus the greenback after the central bank raised interest rates 50 basis points. While the increase marks a downshift from prior hikes, policy makers still see higher rates ahead.
The dollar was flat after an overnight rally against Group-of-10 currencies. Purchasing managers’ index readings for services and manufacturing that came in stronger than expected underpinned gains in Treasury yields and the currency.
The action in the US marked a shift in perception on rates. Investors are pricing in the federal funds rate climbing to around 5.3% in June. That compares with a perceived peak of 4.9% just three weeks ago and follows a ratcheting up of rhetoric from central bank officials over the past week.
“A tight labor market and resilient consumer demand could goad the Federal Reserve to maintain its rate hiking campaign into the summertime,” said Jeffrey Roach, chief economist for LPL Financial. “Investors should expect volatility until markets and central bankers come to agreement on the expected path for interest rates.”
A rocky geopolitical outlook has not helped. President Vladimir Putin said Russia will suspend its observation of the New START nuclear weapons treaty with the US, a decision Secretary of State Antony Blinken called “irresponsible.” President Joe Biden hit back at Putin, saying he would never win his war in Ukraine.
The White House would be open to sanctioning Chinese companies that support Russia’s invasion of Ukraine, Deputy Treasury Secretary Wally Adeyemo said.
Elsewhere, the price of Brent crude fell to extend a Tuesday drop that has curtailed a recent rally driven by expectations of growing Chinese demand.
In Hong Kong, officials said the stock exchange was exploring arrangements to allow continuous trading through severe weather. Trading in shares and other types of securities can be halted when typhoons and other extreme weather events hit.
Key events this week:
US MBA mortgage applications, Wednesday
Federal Reserve releases minutes from its latest policy meeting, Wednesday
Eurozone CPI, Thursday
US GDP, initial jobless claims, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
US PCE deflator, personal spending, new home sales, University of Michigan consumer sentiment, Friday
Russia’s invasion of Ukraine hits the one-year mark, Friday
Some of the main moves in markets as of 1:57 p.m. Tokyo time:
S&P 500 futures rose 0.2%. The S&P 500 fell 2%
Nasdaq 100 futures rose 0.3%. The Nasdaq 100 fell 2.4%
Japan’s Topix fell 1.1%
Australia’s S&P/ASX 200 fell 0.4%
Hong Kong’s Hang Seng was little changed
The Shanghai Composite fell 0.3%
Euro Stoxx 50 futures fell 0.2%
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0658
The Japanese yen was little changed at 134.90 per dollar
The offshore yuan was little changed at 6.8980 per dollar
Bitcoin fell 0.3% to $24,118.94
Ether was little changed at $1,642.08
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth and Akshay Chinchalkar.
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