Asian stocks headed for a fifth week of declines following more weakness in US equities and a surge in short-end Treasury yields that reflect bets for outsized Federal Reserve interest rate hikes.
Shares fell in Japan, Australia and Hong Kong after the S&P 500 Index closed at its lowest level in about two months. Mainland China equities also slumped, with data for industrial production and retails sales that beat expectations having little impact on downbeat sentiment.
The offshore yuan remained on the weaker side of 7 to the dollar, even as the People’s Bank of China set the reference rate for the currency stronger-than-forecast for a 17th straight day.
“While China activity showed some improvement this morning, equity investors really want to see substantial easing in China’s policies related to Covid to turn a bit more constructive,” said Chetan Seth, Asia-Pacific equity strategist at Nomura Holdings Inc. in Singapore. “That has not happened.”
The greenback fluctuated and policy-sensitive two-year Treasury yields held near the highest since 2007. The latest US economic data painted a mixed picture for the economy that backed the view for hawkish monetary policy.
The market weakness follows data showing applications for US unemployment insurance fell for a fifth straight week, suggesting demand for workers remains healthy. Retail sales indicated spending on goods is moderating. Other figures showed factory production rose slightly in August while total industrial production, including mining and utilities, fell. University of Michigan data Friday will be parsed for clues on inflation expectations.
Swaps traders are currently pricing in a 75 basis-point hike when the Fed meets next week, with some wagers appearing for a full-point move. The continued rise in rate-sensitive Treasuries deepened the curve inversion, a harbinger for a looming recession. The curve from five to 30 years inverted by as much as 20 basis points in US trading Thursday.
“This is a market waiting for the next catalyst,” Fiona Cincotta, senior financial markets analyst at City Index, said by phone. “What we saw in the selloff on Tuesday is the repricing of expectations of the Fed. Until we really hear from the Fed we are not going to get a very clear direction.”
Oil held most of Thursday’s loss with demand concerns at the fore as the US Department of Energy walked back expectations of its plan to restock petroleum reserves and China considered allowing more fuel exports. Natural gas futures sold off in US trading after railroads and unions reached a tentative deal to avert a strike that threatened to disrupt domestic coal deliveries.
Here are some key events to watch this week:
- China home sales, retail sales, industrial production, fixed assets, surveyed jobless rate, Friday
- Euro area CPI, Friday
- University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
- The S&P 500 futures contracts fell 0.7% as of 1:43 p.m. in Tokyo. The underlying gauge dropped 1.1% on Thursday
- Nasdaq 100 futures fell 0.9% after the underlying index slipped 1.7%
- Topix index dropped 0.5%
- Australia’s S&P/ASX 200 Index shed 1.5%
- Kospi index lost 1%
- Hang Seng index dropped 0.4%
- The Bloomberg Dollar Spot Index was little changed
- The euro traded at $1.0001
- The Japanese yen rose 0.2% to 143.27 per dollar
- The offshore yuan slipped 0.1% to 7.0196 versus the dollar
- The yield on 10-year Treasuries was steady at 3.45%
- Australia’s 10-year bond yield rose five basis points to 3.73%
- West Texas Intermediate crude rose 0.3% to $85.34 a barrel
- Gold traded at $1 664.13 an ounce