Asia stocks fall as treasury yields, dollar higher: Markets wrap

Shares in Asia slid while Treasury yields and the dollar rose in a sign investors are yet to fully recalibrate interest rate expectations.

Equity benchmarks for Japan, Australia and China all fell while a decline in South Korean equities dragged the Kospi Index to a six-month low. Hong Kong’s Hang Seng Index also decreased, falling as much as 0.9%, its lowest level since late November.

A gauge of Chinese property developers dropped after slumping by the most in nine months on Monday amid fresh signs of turmoil for the sector. China Evergrande Group missed a debt payment and former executives were detained. That added to fears about the sector’s debt pile and compounded concern that global growth will stall as the economic engine of the world’s second biggest economy sputters.

Treasury yields continued to climb after the 10-year rate added 11 basis points to set a 16-year high on Monday to trade above 4.54%. The momentum flowed into Asia, with Australian and New Zealand yields also rising.

“Rates will stay high,” BlackRock Investment Institute analysts including Wei Li, global chief investment strategist, wrote in a note. Quantitative tightening and Treasury issuance in the US could spur yields higher in the near term. “Rising long-term bond yields show markets are adjusting to risks in the new regime of greater macro and market volatility.”

Increasing yields supported the greenback. The Bloomberg dollar index held its gains from Monday, when it closed at the highest level since December. The yen steadied after weakening to a year low after Bank of Japan officials doubled down on the message that stimulus is still needed.

A warning that a US government shutdown would reflect poorly on America’s credit rating from Moody’s Investors Service did little to shift market sentiment Monday. Concerns about a shutdown may intensify later this week as October 1 draws near.

Crude prices edged down Tuesday, falling for a second session. Traders are increasingly concerned that rising oil prices risk fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon. Hedge funds boosted exposure to oil on bets tightening supplies will stoke demand.

Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects US interest rates to increase again this year given the robust economy. Those sentiments echoed comments last week from Boston Fed President Susan Collins, who said further tightening “is certainly not off the table,” while Fed Governor Michelle Bowman signaled that more than one increase will probably be required.

Fed Bank of Chicago head Austan Goolsbee, meanwhile, said Monday it’s still possible for the US to avoid a recession. “I’ve been calling that the golden path and I think it’s possible, but there are a lot of risks and the path is long and winding,” he said in a CNBC interview.

“There are several reasons to believe that the full impact from tighter monetary policy is still yet to take effect,” said Henry Allen, a strategist with Deutsche Bank. “As such, it will be some months before we can sound the all clear for the economy, not least given longer-term interest rates are still reaching new highs even now.”

Key events this week:

• US new home sales, Conference Board consumer confidence, Tuesday
• ECB’s Philip Lane speaks on monetary policy, Tuesday
• China industrial profits, Wednesday
• US durable goods, Wednesday
• Eurozone economic confidence, consumer confidence, Thursday
• US initial jobless claims, GDP, Thursday
• Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
• Eurozone CPI, Friday
• Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
• US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
• ECB President Christine Lagarde speaks, Friday
• New York Fed President John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.3% as of 1:35 p.m. Tokyo time. The S&P 500 rose 0.4%
• Nasdaq 100 futures fell 0.4%. The Nasdaq 100 rose 0.5%
• Japan’s Topix fell 0.4%
• Australia’s S&P/ASX 200 fell 0.5%
• Hong Kong’s Hang Seng fell 0.8%
• The Shanghai Composite fell 0.3%
• Euro Stoxx 50 futures fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was little changed at $1.0586
• The Japanese yen was little changed at 148.91 per dollar
• The offshore yuan was little changed at 7.3090 per dollar

Cryptocurrencies

• Bitcoin rose 0.2% to $26,333.25
• Ether rose 0.3% to $1,590.89

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.55%
• Japan’s 10-year yield advanced 1.5 basis points to 0.745%
• Australia’s 10-year yield advanced nine basis points to 4.40%

Commodities

• West Texas Intermediate crude fell 0.4% to $89.34 a barrel
• Spot gold fell 0.1% to $1 913.89 an ounce