Stocks fall as global markets await word from US Fed

Tokyo — Treasury yields and the dollar hovered above multi-week lows on Wednesday as markets grappled with the possibility of another US interest-rate hike while awaiting comments by US Federal Reserve chair Jerome Powell later in the day.

Stocks were in the red, with declines in energy shares and financials eclipsing gains for tech stocks.

Crude oil sank to a three-month low after data showed a steep build in US stockpiles, while worries about the Chinese economy weighed on the outlook for demand.

Expectations have been building in recent days that US policy rates have peaked and cuts could begin as early as May, following a softening in key monthly jobs data at the end of last week and a tempering in the Fed’s hawkish stance. However, investors remain sensitive to the possibility of more hikes amid guarded remarks from central bank officials.

Fed governor Christopher Waller said on Tuesday that the economy bears watching after “blowout” third-quarter GDP figures, while fellow governor Michelle Bowman said she still expects higher rates will be needed. Powell speaks on Wednesday and Thursday.

“The markets are repositioning for a moderation in US growth,” pushing down long-term yields and the dollar, said Kyle Rodda, a senior markets analyst at Capital.com.

“The drop in oil prices is delivering a similar signal,” he added. “The sell-off is coming on demand fears: There’s a lot of fear about China’s recovery in that, but also that after exceptional resilience, the US economy is slowing.”

Brent crude futures ticked up 4c to $81.65 a barrel, while US crude futures slipped 14c to $77.24. Both declined to the lowest since July 24 on Tuesday.

US 10-year treasury yields were little changed at around 4.58%, finding a floor after dipping as low as 4.484% on Friday for the first time since September 26. They reached a 16-year high of 5.021% in October.

The dollar index, which measures the currency against six major peers, ticked up to 105.605, pulling away from the more than six-week low of 104.84 reached on Monday, but well back from the high at the start of this month at 107.11.

The majority of FX strategists in a Reuters poll expect dollar weakness to linger for the rest of the year, amid a building consensus that the Fed’s tightening cycle is done, also signalling a peak in US yields.

MSCI’s broadest index of Asia-Pacific shares sank 0.44%.

Japan’s Nikkei 225 flipped from early gains to be down 0.19% after Bank of Japan governor Kazuo Ueda told parliament the central bank doesn’t need to wait until real wages turn positive before exiting stimulus. He also hinted that an end to ETF purchases was nearing.

Chinese equities also fell, as the respite offered by some bullish comments from the People’s Bank of China governor proved short-lived.

Hong Kong’s Hang Seng dropped 0.6%, while an index of mainland blue chips lost 0.46%.

Wall Street futures pointed slightly lower following gains across the big three indexes overnight, led by a 0.9% rally for the tech-heavy Nasdaq. Pan-European Stoxx 50 futures slipped 0.2%

Reuters