Asian stocks were set to follow a selloff on Wall Street, with bond yields rising as traders comb through remarks from a slew of Federal Reserve officials and await Jerome Powell’s speech for clues on the interest-rate outlook.
(Bloomberg) — Asian stocks were set to follow a selloff on Wall Street, with bond yields rising as traders comb through remarks from a slew of Federal Reserve officials and await Jerome Powell’s speech for clues on the interest-rate outlook.
Equity futures for Japan, Hong Kong and Australia pointed to declines after the S&P 500 almost wiped out its weekly advance, while losses in the Nasdaq 100 topped 2%. Treasury two-year yields, which are more sensitive to imminent policy moves, climbed above 5%. The greenback advanced against all of its G-10 peers on Thursday, with the Australian and New Zealand dollars falling the most in more than three weeks.
Traders are keeping a close eye on the annual gathering of top central bankers in Jackson Hole, Wyoming — where Powell is scheduled to deliver a speech at 10:05 a.m. Washington time Friday. The Fed chief will likely use his platform to outline how officials will assess whether rates should go higher and determine when it’s time to start cutting them.
In the run-up to Powell’s address, Fed Bank of Boston President Susan Collins told Yahoo! Finance that rate increases may be necessary, adding that she wasn’t prepared to signal the peak point. Meantime, her Philadelphia counterpart Patrick Harker sees interest rates on hold for the rest of this year, and thinks policymakers have likely undertaken sufficient tightening, telling CNBC that “we’ve probably done enough.”
Speaking earlier in an interview on Bloomberg Television, former St. Louis Fed President James Bullard said a pickup in economic activity this summer could delay plans for the Fed to wrap up interest-rate increases.
Read More: Fed Officials See Rates Close to Peak, Differ on How Close
A survey conducted by 22V Research shows that 78% of investors expect Powell to focus on data dependency. The next most-popular choice was financial conditions, which received 12% of votes. Only 21% of investors expect the market reaction to be “risk-off”, while 43% bet it will be mixed or negligible and 37% predict a “risk-on” response.
“If Powell focuses on data dependency, that ought to help 10-year yields stabilize,” said Dennis DeBusschere, founder of the New York-based research firm. That would also provide a “tailwind” to the growth-versus-value trade, he noted.
‘Goldilocks’ Rate
Another topic that has surfaced on Wall Street over the past few days is whether Powell will address the abstract, almost elusive number that many refer to as r-star. That’s a sort of “goldilocks” rate that neither stimulates nor restricts economic growth.
Former Treasury Secretary Larry Summers and Bill Dudley, previously the New York Fed chief, are among those who have said markets are still underestimating the so-called neutral interest-rate. Any hint at an upward revision would likely ripple across global markets, forcing a reevaluation on where the fair value for Treasury yields is likely to land.
Yet Krishna Guha at Evercore ISI said Powell will likely focus on the short-to-medium-term outlook — and avoid making a call on the r-star.
“Expect a balanced assessment with no abrupt hawkishness, but no ‘Mission Accomplished’,” Guha added. “The Fed has not come this far to let inflation slip out of its grasp.”
Key events this week:
- Japan Tokyo CPI, Friday
- US University of Michigan consumer sentiment, Friday
- Fed Chair Jerome Powell, ECB President Christine Lagarde to address Jackson Hole conference, Friday
Some of the main moves in markets:
Stocks
- Hang Seng futures fell 0.8% as of 7:09 a.m. Tokyo time
- S&P/ASX 200 futures fell 1.3%
- Nikkei 225 futures fell 1.6%
- The S&P 500 fell 1.3%
- The Nasdaq 100 fell 2.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro was little changed at $1.0815
- The Japanese yen was little changed at 145.81 per dollar
- The offshore yuan was unchanged at 7.2806 per dollar
Cryptocurrencies
- Bitcoin rose 0.2% to $26,064.27
- Ether rose 0.2% to $1,653.09
Bonds
- The yield on 10-year Treasuries advanced five basis points to 4.24%
Commodities
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
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