Plants outside a Home Depot store in Atlanta, Georgia, US, on Wednesday, 13 February 2023. 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 on Tuesday. Australian yields trimmed their gains after weaker-than-expected wages growth data.
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 inched lower after an overnight rally against G10 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 labour 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 rose after a drop on Tuesday that curtailed a recent rally on the hopes of growing Chinese demand. BM/DM