Asia stocks, US futures decline on Fed hike bets: markets wrap

Stocks in Asia dropped alongside US equity futures with expectations of steeper US rate hikes growing after comments by two Federal Reserve officials. The dollar rallied.

An Asian stock benchmark was set for a third straight weekly slide, the worst such run of losses since October. Contracts for both the S&P 500 and Nasdaq 100 were down after the underlying indexes sank more than 1% on Thursday.

The Bloomberg dollar gauge rose as much as 0.4%, erasing its losses for the year, while benchmark Treasury yields climbed for a fourth day. Yields on two-year and 10-year Treasuries both set 2023 highs this week. Data on Thursday showed that US producer prices rebounded in January by the most since June.

Federal Reserve Bank of Cleveland President Loretta Mester said she had seen a “compelling economic case” for rolling out another 50 basis-point hike, and St. Louis President James Bullard said he would not rule out supporting a half-percentage-point increase at the March meeting. While Mester and Bullard participate in deliberations, they do not vote on monetary policy decisions this year.

The market has been “a little bit too sanguine” so far this year concerning any imminent Fed pivot, according to Helen Zhu, chief investment officer at Hong Kong-based Nan Fung Trinity.

“We don’t necessarily think there’s going to be a 50-basis-point rate hike at this next Fed meeting, but we do think that the expectations for a lot of cuts in the second half of this year are probably overdone,” Zhu said on Bloomberg Television.

Investors have been upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing past 5.2% in July, according to trading in the US money markets. That compares with a perceived peak rate of 4.9% just two weeks ago.

Australian bond yields rose, following the moves in Treasuries, and as the nation’s central bank chief spoke in parliament. Governor Philip Lowe said further rate increases would be needed to tame rising prices as policy makers balanced two key risks.

“One is the risk of not doing enough, which would result in high inflation persisting and then later proving very costly to get down,” Lowe said. “The other is the risk that we move too fast, or too far.”

China liquidity

In China, the central bank added the biggest amount of cash on record into the banking system to avoid a liquidity squeeze. Earlier, the government was said to be selecting regulatory veterans known for their strict campaigns against financial wrongdoing as the new heads of the country’s banking and securities watchdogs.

China Renaissance Holdings Ltd. fell as much as 50% in Hong Kong, the most ever, after saying that it was unable to contact Bao Fan, chairman, chief executive officer and controlling shareholder of the Chinese investment bank.

Most of the dollar bonds issued by Indian conglomerate Adani Group exited distressed territory after it said it will address upcoming maturities of the debt. The move is seen as the group’s latest effort to boost investor sentiment after a rout sparked by a US short-seller report.

Bitcoin retreated after three days of gains that were fueled by easing fears of a US regulatory crackdown.

In commodities, oil headed for a weekly drop as rising US inventories and the prospect of further tightening by the Federal Reserve eclipsed the lift from more signs that Chinese energy demand is improving. Gold fell.

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.4% as of 1:53 p.m. Tokyo time. The S&P 500 fell 1.4%
• Nasdaq 100 futures fell 0.6%. The Nasdaq 100 fell 1.9%
• Japan’s Topix index fell 0.4%
• South Korea’s Kospi index fell 0.8%
• Hong Kong’s Hang Seng Index fell 0.6%
• China’s Shanghai Composite Index fell 0.2%
• Australia’s S&P/ASX 200 Index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%
• The euro fell 0.4% to $1.0634
• The Japanese yen fell 0.6% to 134.74 per dollar
• The offshore yuan fell 0.3% to 6.8894 per dollar
• The Australian dollar fell 0.7% to $0.6834

Cryptocurrencies

• Bitcoin fell 3.1% to $23,780.64
• Ether fell 1.5% to $1,657.81

Bonds

• The yield on 10-year Treasuries advanced two basis points to 3.88%
• Australia’s 10-year yield advanced six basis points to 3.82%

Commodities

• West Texas Intermediate crude fell 1.1% to $77.66 a barrel
• Spot gold fell 0.6% to $1 825.34 an ounce