Asia stocks fall on higher-for-longer Fed wagers: markets wrap
Asian shares slumped, following losses on Wall Street, after better-than-expected US employment data backed the case for the Federal Reserve to keep interest rates elevated and pushed up Treasury yields.
MSCI’s Asia stock benchmark was on course for a technical correction as shares declined more than 1% in Japan and South Korea and Hong Kong stocks slipped at the open. US equity contracts edged lower. New Zealand’s dollar fell after the central bank kept interest rates unchanged and signalled a subdued growth outlook.
The S&P 500 dropped to a four-month low on Tuesday and yields on US 10- and 30-year debt climbed to the highest since 2007 after job openings unexpectedly increased. A vote that toppled US House Speaker Kevin McCarthy is likely to further fuel uncertainty after Wall Street’s fear gauge, or VIX, rose to the highest since May.
Wall Street has been speculating rates on longer maturity yields will climb to 5%. Tuesday’s increase in yields stoked anxiety in the credit market, where at least two issuers called off sales. Treasuries extended losses in Asian trading.
Bloomberg’s gauge of dollar strength edged up after rising to the highest since November on Tuesday, bolstered by climbing Treasury yields. The yen crept lower after Japan’s top currency official Masato Kanda declined to comment on whether any intervention was conducted on Tuesday following the currency’s decline to the weakest level in a year.
“The subsequent rebound in USD/JPY illustrates how difficult it is to change the path of the exchange rate on a sustained basis,” said Tony Sycamore, a market analyst at IG Australia. “Unless US yields start to fall, the best authorities can hope for is to buy time and to slow the speed of USD/JPY’s rise above 150.”
The yield on Chinese investment-grade dollar credit rose to an 11-month high at 6.51%, having climbed more than 100 basis points from May’s low. Spreads, though, remain well within this year’s range. China is in the midst of a week-long holiday.
US markets tumbled Tuesday after the number of available job openings rose to 9.61 million in August from less than 9 million the previous month, according to the Bureau of Labour Statistics. The report drove swaps traders to increase wagers on the Fed raising rates in December to greater than 50%.
Atlanta Fed president Raphael Bostic, who does not vote this year, beat the “higher-for-longer” drum on Tuesday, saying the central bank needed to keep rates elevated “for a long time”. He forecast a single rate cut for 2024, toward year-end. His comments came after other Fed policymakers who were also hawkish.
“The current environment has a tone of elevated uncertainty and building apprehension that the fourth quarter will offer a true litmus test for whether markets (and implicitly the real economy) are resilient enough to manage persistently elevated borrowing costs,” BMO Capital Markets strategists Ian Lyngen and Ben Jeffery wrote in a note.
The next key data point for the US labour market will be the monthly payrolls print on Friday.
Elsewhere, oil steadied ahead of an OPEC+ review of the global crude market and a weekly update of US stockpiles. Gold was little changed.