Asian stocks, yields weak on recession fears

Tokyo — Asian stocks followed Wall Street lower and bond yields remained depressed on Thursday as investors weighed the risks of global recession amid hawkish Federal Reserve rhetoric and uncertainty about the Bank of England’s (BOE) commitment to stabilising markets.

The recession risks also fuelled concerns about demand for oil, and crude prices failed to bounce after the previous day’s 2% fall.

The dollar held its ground against major peers as traders awaited US consumer price data that could shed light on the pace of further Fed policy tightening.

Japan’s Nikkei slipped 0.53%, while South Korea’s Kospi slid 1.18%.

Hong Kong’s Hang Seng dropped 1.02%, and mainland Chinese blue chips lost 0.64%.

MSCI’s broadest index of Asia-Pacific shares sank 0.54%, languishing close to Wednesday’s two-and-a-half-year low.

Australia’s stock benchmark was an outlier, eking out a 0.1% gain, buoyed by big gains for Qantas after the airline said it expects to swing to profit for the first-half.

US e-mini stock futures also offered some slight hope, rising 0.1% after a 0.33% decline in the S&P 500 from overnight.

US long-term treasury yields languished near the lows of the past two days, little changed at 3.9227% in Tokyo trading.

Brace for aggressive rate rises

US rates turned lower overnight after minutes from the Fed’s latest policy meeting showed many officials “emphasised the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action”, though several committee members said it would be important to “calibrate” the pace of further rate hikes to reduce the risk of “significant adverse effects” on the economy.

Treasury yields turned lower after the minutes, reversing an earlier rise, with investors focusing on the dovish undertones in taking yields back from near two-decade highs.

But Fed governor Michelle Bowman struck a hawkish stance in a speech on Wednesday, saying that if high inflation does not start to wane, she will continue to support aggressive rate rises.

Markets lay 90% odds for another 75 basis-point (bps) rate hike in November, vs 10% probability of a half-point bump.

The immediate focus for investors now is US consumer price data due later in the global day.

Wednesday’s minutes were “not the dovish pivot some market participants are looking for,” Joseph Capurso, head of international economics at Commonwealth Bank of Australia, wrote in a client note.

“A pivot will depend on the inflation data.”