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Asian equities slide as Fed minutes show hike bias: markets wrap

Asian equities slide as Fed minutes show hike bias: markets wrap
(Photo: Unsplash / Timis Alexander)

Asian shares followed Wall Street lower on Thursday after hawkish signals from the Federal Reserve’s latest meeting minutes damped investor sentiment.

Japan led the declines, with the Topix index on course for a third straight drop, trimming its 20% rally this year. Benchmarks in Australia and South Korea also fell, along with futures for Hong Kong. 

The S&P 500 declined 0.2% on Wednesday while the Nasdaq 100 fell less than 0.1%. Contracts for these gauges edged lower in early Asian trading as investors also looked ahead to US jobs data over the next two days that will further illuminate the path for interest rates.

Yields on Australian and New Zealand 10-year government bond yields rose to 2023 highs following further selling in their US counterparts on Wednesday.

Treasuries steadied in Asia on Thursday after the 10-year yield jumped to 3.93% in the previous session and the two-year rate inched up to 4.94% — putting each maturity around the highest level since March.

The action was driven by Fed minutes showing division among policymakers over the decision to pause in the central bank’s June meeting, with the voting members on track to take rates higher this month.

“It’s very difficult for the Fed to be pivoting anytime soon,” said Sue Trinh, co-head of global macro strategy for Manulife Investment Management, on Bloomberg Television. Prior pivots have occurred with core inflation around half current levels, suggesting more tightening ahead, she said. “We are positioned somewhat more defensively in the shorter term.”

A series of US employment reports due on Thursday and Friday will be pivotal. The so-called JOLTS report of job openings is expected to show a tapering of available positions and a separate measure of jobless claims is anticipated to tick higher, in a sign of cooling in the labour market.

Meanwhile, Treasury Secretary Janet Yellen touches down in Beijing on Thursday to attempt to further repair the relationship between the world’s two largest economies.

A news outlet backed by China’s central bank published commentary stating that the country has ample tools to stabilise the foreign exchange market even if the yuan suddenly weakens.

Separately, China’s largest banks reduced rates on the country’s $453-billion in corporate US dollar deposits. The cut was the second in a matter of weeks and signals a further attempt to shore up the struggling yuan.

Elsewhere in emerging markets, the central banks of Malaysia and Sri Lanka will hand down interest rate decisions on Thursday.

Moves in major currencies were relatively muted, aside from the yen strengthening about 0.3% versus the dollar. Traders are likely to keep a keen eye on both the yen and the yuan again, with no end in sight to the broad downward pressure on these currencies. DM


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