(Photo: Gallo Images / Sydney Seshibedi) 
The drop in Asian stocks clawed back some of the sharp moves higher in Chinese equities earlier this week and came after the S&P 500 closed near the lowest in six weeks and as the 10-year Treasury yield pierced the closely-watched 4% level.
Swaps markets are now pricing in a peak US policy rate of 5.5% in September, with some traders betting it may reach 6%. That’s spilling over into markets around the world, even as China’s economy shows signs of rebounding strongly after exiting its Covid-Zero policy.
“The good news out of China is what the market has really needed at this point where globally we are seeing these inflation concerns not dying out,” Charu Chanana, senior markets strategist at Saxo Capital Markets, said on Bloomberg Television.
Yet she warned that this good news has a negative side in terms of global inflation: “The China reopening story adds cyclical upside pressure because of the sheer amount of demand that China can create.”
Yields on Australian and New Zealand government bonds rose across the 2-year to 10-year maturities in moves that largely tracked Treasuries. The 10-year Treasury remained just above 4% during Asian trading.
The dollar rose against its G10 counterparts after a gauge of greenback strength dropped 0.5% on Wednesday, the most in a month.
The offshore yuan weakened after being one of the most notable gainers versus the dollar Wednesday, when it rallied more than 1% in its largest advance since November.
The trigger for higher yields was Fed officials on Wednesday reinforcing their hawkish stance. Atlanta Fed’s Raphael Bostic called for continued rate hikes to above 5% to make sure inflation doesn’t pick up again. Minneapolis Fed president Neel Kashkari, meanwhile, said he’s concerned that there isn’t much of an indication that the central bank’s rate hikes are slowing down the services sector.
Oil steadied, but remained set for a third day of gains on optimism over a revival in Chinese demand. Gold slipped. BM/DM