Asian stocks tumble after Wall Street slump, traders expect higher interest rates
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Market pricing now implies rates will peak at 5.2 per cent in July, up from less than 5 per cent a month ago.
PHOTO: PIXABAY
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MELBOURNE – Shares in Asia declined after Wall Street saw the worst week for stocks and bonds in 2023 as traders increased interest rate expectations ahead of crucial United States inflation data due on Tuesday.
The negative sentiment reverberated across major indexes in Asia, with a regional equity benchmark headed for its lowest close in more than a month. Contracts for US stock futures slid.
The S&P 500 ended last week 1.1 per cent lower, while the tech-heavy Nasdaq 100 slipped 2.1 per cent, the worst weekly performance in 2023 for the two indexes.
Bonds fell as well, with the Bloomberg Global Aggregate index dropping 1.6 per cent, the worst weekly run since September 2022.
The losses were driven by a repricing of interest-rate expectations as investors reassessed how high US borrowing costs are likely to rise in 2023. Market pricing now implies rates will peak at 5.2 per cent in July, up from less than 5 per cent a month ago.
Australian and New Zealand government bonds extended losses in early Asian trading, following a selloff in US government bonds last Friday that pushed up the 10-year Treasury yield by seven basis points.
The yen weakened after whipsawing on Friday following news reports that Mr Kazuo Ueda would be picked to become the Bank of Japan’s (BOJ) next governor. Investors initially interpreted the decision as a potentially hawkish choice.
Those gains were trimmed after Mr Ueda spoke to reporters and said the BOJ’s stimulus should stay in place. Japan’s government is set to officially announce the nomination of the new BOJ governor on Tuesday.
For the time being, Mr Ueda seems to be more hawkish than the current dovish governor Haruhiko Kuroda, according to Mr Yujiro Goto, head of foreign-exchange strategy at Nomura Holdings.
“BOJ’s policy stance will be at least more neutral going forward and the fundamental is also pointing that monetary policy normalisation is necessary,” Mr Goto said.
“That will still be positive for (the) Japanese yen in the medium term.”
Economists forecast US inflation data to be published on Tuesday will show annual consumer-price gains slowing to 6.2 per cent, which would be the lowest reading since late 2021. The data will provide much-needed direction for the Federal Open Market Committee (FOMC) to set interest rates.
“The next CPI report has become binary – markets will either breathe a huge sigh of relief, or risk aversion will accelerate,” said Mr Eric Robertsen, global head of research and chief strategist for Standard Chartered.
“The more the FOMC is compelled to extend the rate-hiking cycle and postpone rate cuts, the more likely it is that the US will experience a hard landing, requiring more aggressive rate cuts later,” added Mr Robertsen.
Philadelphia Fed president Patrick Harker was the latest central banker to unveil expectations for rates to climb above 5 per cent, after a drum-beat of commentary last week that included a prediction from Minneapolis Fed president Neel Kashkari that the level would reach 5.4 per cent.
On Monday, Singapore reported its 2022 economic growth at 3.6 per cent,
The city state reaffirmed its growth forecast for 2023 at between 0.5 per cent and 2.5 per cent as authorities focus on combating stubborn core inflation and slowing demand.
Traders will also keep a keen eye on geopolitical developments after the Pentagon shot down an unidentified object that it tracked over Michigan,
This was the fourth time in eight days a balloon or high-flying craft has been shot down over the US or Canada.
Elsewhere, oil fell as Russia’s plan to curb supply in retaliation for western sanctions was offset by concerns about slowing global growth. Gold edged lower. BLOOMBERG
