Asian stocks were poised to fall Wednesday after hawkish rhetoric from Jerome Powell rattled risk sentiment in the US and drove the dollar higher against all of its major peers.
(Bloomberg) — Asian stocks were poised to fall Wednesday after hawkish rhetoric from Jerome Powell rattled risk sentiment in the US and drove the dollar higher against all of its major peers.
Equity futures for Australia, Japan and Hong Kong declined. All major US benchmarks slid more than 1%, with the S&P 500 Index falling the most in two weeks. An index of US-traded Chinese companies tumbled 3%.
During a Senate testimony, the Federal Reserve’s chief signaled officials are ready to speed up the pace of tightening and take rates to higher levels should inflation keep running hot. That sent short-end yields skyrocketing and prompted a shift higher in rate-hike bets.
The two-year Treasury yield increased to 5% Tuesday, the highest level since July 2007. In a worrying sign, that rate surpassed its 10-year equivalent by a full percentage point for the first time since 1981. Situations in which shorter-term rates are higher than those at the longer end are referred to as curve inversions — and are often seen as potential harbingers of a recession.
Australia’s 10-year bond was little changed in early trading Wednesday, while the Aussie held steady after falling more than 2% on Tuesday as a gauge of dollar strength jumped the most in two months.
In the swaps market, traders boosted wagers for the March 22 meeting, with a half-point hike seen as more likely than a quarter-point move and a peak of about 5.66% by September. The Fed raised its policy rate by a quarter point to a range of 4.5% to 4.75% in February.
“A 6% terminal rate is not out of the question now,” said Kellie Wood, deputy head of fixed income at Schroders Plc in Australia. “Expect to see a broad-based selloff in Aussie and Asian markets today led by the short end but with US rates underperforming.”
Read more: BlackRock’s Rieder Sees Reasonable Chance Fed Lifts Rate to 6%
US policymakers will have a chance to review the February jobs data and an update on consumer prices before they meet again. Ahead of the jobs report on Friday, the projection is for a 224,000 increase, which would be about half the pace seen in January.
US payroll growth has topped estimates for 10 straight months in the longest streak in decades, a trend that, if extended, will boost pressure on the Fed to keep raising interest rates. Beginning in April last year, the median forecast in each survey of economists fell short of the government’s initial estimate of payrolls by an average of 100,000 a month — the most in data compiled by Bloomberg back to 1998.
Key events this week:
- Euro area GDP, Wednesday
- US MBA mortgage applications, ADP employment change, trade balance, JOLTS job openings, Wednesday
- Fed Chair Powell’s semiannual Monetary Policy Report to the House Financial Services Committee, Wednesday
- Canada rate decision, Wednesday
- EIA crude oil inventories, Wednesday
- China CPI, PPI, Thursday
- US Challenger job cuts, initial jobless claims, household change in net worth, Thursday
- Bank of Japan policy rate decision, Friday
- US nonfarm payrolls, unemployment rate, monthly budget statement, Friday
Some of the main moves in markets as of 7:31 a.m. Tokyo time:
Stocks
- The S&P 500 fell 1.5% on Tuesday
- The Nasdaq 100 fell 1.2%
- Nikkei 225 futures fell 0.5%
- Australia’s S&P/ASX 200 Index futures fell 0.8%
- Hang Seng Index futures fell 1.3%
Currencies
- The Bloomberg Dollar Spot Index rose 1% on Tuesday
- The euro was little changed at $1.0548
- The Japanese yen was little changed at 137.09 per dollar
- The offshore yuan was little changed at 6.9933 per dollar
Cryptocurrencies
- Bitcoin rose 0.3% to $22,112.88
- Ether was little changed at $1,549.44
Bonds
- The yield on 10-year Treasuries was little changed at 3.96%
- Australia’s 10-year yield was little changed at 3.67%
Commodities
- Spot gold was unchanged at $1,813.45 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth.
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