A gauge of Asian equities dropped more than 1% Wednesday, led by heavy declines in technology stocks, after hawkish rhetoric from Federal Reserve Chair Jerome Powell hurt appetite for risk taking.
(Bloomberg) — A gauge of Asian equities dropped more than 1% Wednesday, led by heavy declines in technology stocks, after hawkish rhetoric from Federal Reserve Chair Jerome Powell hurt appetite for risk taking.
Hong Kong-listed Chinese technology companies fell more than 3%, while the broader Hang Seng Index dropped more than 2%. Traders said derivatives and structured products likely amplified the declines. Equity benchmarks in South Korea and Australia also fell. US futures fluctuated after a sharp slide on Wall Street Tuesday, when the S&P 500 dropped the most in two weeks.
A measure of greenback strength held near its highest level this year, putting particular pressure on emerging markets. The yen extended its decline, the yuan traded just below the key level of 7 versus the dollar and the currencies of Australia and New Zealand held most of their large losses from the previous session.
Powell signaled during Senate testimony that officials were ready to speed up the pace of tightening and take rates to higher levels if inflation remains hot. That’s sent short-end yields skyrocketing and prompted a shift higher in rate-hike bets.
The two-year Treasury yield rose further above 5% Wednesday and was at the highest level since mid 2007. The rate has now surpassed its 10-year equivalent by a full percentage point for the first time since 1981. This is playing out in a deeply inverted yield curve — a potential harbinger of recession.
Read more: Deepest Bond Yield Inversion Since Volcker Suggests Hard Landing
Australia’s 10-year bond yield rose six basis points to 3.75% while the more policy-sensitive three-year yield climbed nine basis points to 3.47%. That’s even as Reserve Bank of Australia Governor Philip Lowe said the point is drawing closer for a pause in the tightening cycle.
In the swaps market, traders boosted wagers for the Fed’s March 22 meeting, with an increase in bets for a half-point hike and a peak above 5.6% 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. 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.
Elsewhere in markets, oil held a deep loss from Tuesday as the outlook for rate hikes raised concerns over a drag on demand. Gold was steady after falling to the lowest in a week in response to Powell. Shares of Asian gold and copper producers declined.
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:
Stocks
- S&P 500 futures were little changed as of 12:45 p.m. Tokyo time
- Japan’s Topix rose 0.2%
- Australia’s S&P/ASX 200 fell 1%
- Hong Kong’s Hang Seng fell 2.5%
- The Shanghai Composite fell 0.5%
- Euro Stoxx 50 futures fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.0534
- The Japanese yen fell 0.4% to 137.71 per dollar
- The offshore yuan was little changed at 6.9874 per dollar
Cryptocurrencies
- Bitcoin rose 0.4% to $22,136.62
- Ether rose 0.6% to $1,559.75
Bonds
- The yield on 10-year Treasuries advanced four basis points to 4.00%
- Australia’s 10-year yield advanced six basis points to 3.74%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold fell 0.2% to $1,810.18 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth and Georgina Mckay.
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