(Bloomberg) — Asian equities are poised to fall Wednesday after the S&P 500 tumbled by the most in two months and Treasury yields rose sharply as investors price in higher interest rates.
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Australia shares opened lower while futures contracts for benchmarks in Japan and Hong Kong slid. The S&P 500 tumbled 2% on Tuesday in a decline that touched all major sectors, while the tech-heavy Nasdaq 100 dropped 2.4%. Weak forecasts from US retailing bellwethers added to the negative tone.
Selling in Treasuries pushed the 10-year yield 14 basis points higher to 3.95%. Similar maturity bonds in Australia and New Zealand saw yields climb more than 10 basis points in early Asian trading.
The dollar held most of its overnight rally against G-10 currencies as trading got underway in the region. Purchasing managers’ index readings for services and manufacturing that came in stronger than expected underpinned gains in Treasury yields and the currency.
The New Zealand dollar was about 0.1% lower versus the greenback ahead of a policy decision from the central bank, which is expected to downshift to a 50 basis point rate hike.
The action in the US marked a shift in perception on rates. Investors are pricing in the federal funds rate climbing to around 5.3% in June. That compares with a perceived peak of 4.9% just three weeks ago and follows a ratcheting up of rhetoric from central bank officials over the past week.
“A tight labor market and resilient consumer demand could goad the Federal Reserve to maintain its rate hiking campaign into the summertime,” said Jeffrey Roach, chief economist for LPL Financial. “Investors should expect volatility until markets and central bankers come to agreement on the expected path for interest rates.”
In Tuesday results, Home Depot Inc. cautioned of lower profits ahead, while Walmart Inc. warned about the effects of rising economic uncertainty, further chilling investor sentiment.
A rocky geopolitical outlook has not helped. President Vladimir Putin said Russia will suspend its observation of the New START nuclear weapons treaty with the US, a decision Secretary of State Antony Blinken called “irresponsible.” President Joe Biden hit back at Putin, saying he would never win his war in Ukraine.
The White House said it would be open to sanctioning Chinese companies that support Russia’s invasion of Ukraine, Deputy Treasury Secretary Wally Adeyemo said.
Elsewhere, oil prices fell Tuesday, dragging West Texas Intermediate down 0.2% and Brent, the international benchmark, down about 1.6%, curtailing a recent rally on the hopes of growing Chinese demand.
Key events this week:
US MBA mortgage applications, Wednesday
Federal Reserve releases minutes from its latest policy meeting, Wednesday
Eurozone CPI, Thursday
US GDP, initial jobless claims, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
US PCE deflator, personal spending, new home sales, University of Michigan consumer sentiment, Friday
Russia’s invasion of Ukraine hits the one-year mark, Friday
Some of the main moves in markets:
S&P 500 futures were little changed as of 8:12 a.m. Tokyo time. The S&P 500 closed 2% lower
Nasdaq 100 futures were little changed. The Nasdaq 100 closed 2.4%%
Nikkei 225 futures fell 0.7%
Hang Seng futures fell 0.3%
S&P/ASX 200 fell 0.8%
The Bloomberg Dollar Spot Index rose 0.3% Tuesday
The euro was little changed at $1.0649
The Japanese yen was little changed at 134.96 per dollar
The offshore yuan was little changed at 6.8908 per dollar
The Australian dollar rose 0.1% to $0.6861
Bitcoin rose 0.7% to $24,378.1
Ether rose 0.6% to $1,652.45
West Texas Intermediate crude fell 0.2% to $76.15 a barrel on Tuesday
Spot gold fell 0.3% to $1,835.09 an ounce on Tuesday
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth and Akshay Chinchalkar.
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