Shares fall in Asia after treasury yields spike: markets wrap
Shares fell across Asia after stronger-than-expected private hiring data in the US roiled equities on Wall Street and pushed up Treasury yields.
An Asian equity gauge slid for a third day with the biggest declines in Australia and for Hong Kong technology firms. US equity futures edged lower following losses of 0.8% for the S&P 500 and Nasdaq 100 benchmarks on Thursday as investors’ focus turns to Friday’s critical nonfarm payrolls numbers.
ADP Research Institute data showed US companies added the most jobs in more than a year in June, underscoring the inflationary threat from the resilient labour market.
Samsung Electronics dropped in Seoul after reporting its biggest decline in quarterly revenue since at least 2009. Japanese drug maker Eisai Co. was among the biggest contributors to losses in the Topix index on concern over adoption risks for its Alzheimer’s drug, even after the medication received full approval from the Food and Drug Administration.
Treasuries extended losses in Asia with the policy sensitive two-year yield briefly breaking above 5%, while that on the 10-year note hovered near the highest since March. The two-year yield jumped as much as 17 basis points on Thursday following the ADP report and data showing the service sector expanded in June at the fastest pace in four months.
The slide in Treasuries reverberated across Asia, with Australia’s 10-year yield climbing to the highest level since 2014, before paring the advance. New Zealand’s bond yields also jumped.
The second half half of the year is set to remain volatile for bond markets, according to Robeco. “With an inverted yield curve, it’s a very hard position for bonds,” Thu Ha Chow, head of Asia fixed income at Robeco Singapore, said on Bloomberg Television.
Currencies were mixed in Asia after the Bloomberg Dollar Spot Index rose to the highest level in about four weeks on Thursday. The yen was little changed after rising against all its G10 peers in the prior session, supported by comments from the Bank of Japan about a “balanced” approach toward yield-curve control.
The offshore yuan traded in a narrow range after the People’s Bank of China ramped up support for the currency again through its daily fixing.
Swap contracts linked to the Federal Reserve’s future policy decisions almost fully price in a quarter-point interest-rate hike by July 26 and show a growing likelihood of an additional move by year-end. This expectation for higher rates is reinforcing bets on tighter monetary policy globally as central banks struggle to rein in inflation.
Dallas Fed president Lorie Logan voiced her concerns on Thursday that inflation was still running too hot and more tightening was needed. Stocks have been losing ground in July after a strong first half of the year as hawkishness from central banks dam hopes of a soft landing for the global economy.
Some, however, see the Fed’s 2% inflation target as potentially making things worse.
If they don’t reconsider it “in light of what’s happening in the world today, they could really cause some serious problems with both the real estate and the banking markets,” Carol Pepper, chief executive of Pepper International, said on Bloomberg Television. It’s “unrealistic” to be aiming for inflation at such a low level at this point in the cycle, she said.
Traders will be on tenterhooks for Friday’s US nonfarm payrolls and unemployment reports to see if they reinforce or reduce pressure on the Fed to raise rates soon. Economists surveyed by Bloomberg are expecting figures to moderate.
In Asia, investors will be monitoring any stimulus decision by the Chinese government. The country is at a critical stage of economic recovery and industrial upgrading, Premier Li said in an event on Thursday. He pledged to “spare no time” in implementing a batch of targeted policies to strengthen the country’s economic recovery.
Investors in Chinese assets will also be watching the meeting of US Treasury Secretary Janet Yellen and Premier Li Qiang in Beijing for any signs of improvement in the frayed trade ties of the two superpowers.
Elsewhere, oil headed for a second weekly gain after OPEC+ leaders Saudi Arabia and Russia tightened supplies and US crude stockpiles fell. Gold steadied Friday, but remained on track for a fourth consecutive weekly loss. DM