Yen rings alarm in Japan amid global stock rout: markets wrap

Asian stocks and bonds tumbled in the wake of the broad-based selloff on Wall Street while the yen strengthened after Japan warned of possible intervention in the currency market.

Equity indexes in Japan, Hong Kong and Australia slumped after US shares had their biggest drop in more than two years, with the S&P 500 falling more than 4% and the Nasdaq 100 sliding more than 5%. European equity futures fell while US contracts edged higher.

The yen pulled back from a slide toward the key 145 level versus the dollar after the finance minister warned that Japan wouldn’t rule out any response if current trends continued. The country’s 10-year bond yield rose to 0.25%, the upper end of the central bank’s policy band.

The hotter-than-expected US inflation reading that triggered the stock rout has swaps traders certain the Federal Reserve will raise interest rates three-quarters of a percentage point next week, with some wagers appearing for a full-point move. That leaves investors weighing the prospect of tighter conditions across a swath of markets after jumping back into risk-sensitive assets in recent days on hopes that inflation would cool more.

The two-year Treasury yield, the most sensitive to policy changes, fluctuated in Asia after jumping as much as 22 basis points, pushing it more than 30 basis points above the 10-year rate and deepening an inversion in what is generally a recession warning. Australia’s benchmark 10-year yield jumped about 10 basis points.

“Markets had tried desperately to spin a bull case and fight the Fed, basically, and that’s a dangerous place to be,” Carol Schleif, deputy chief investment officer at BMO Family Office said on Bloomberg TV. Looking further ahead, she pointed to “a great deal of fiscal stimulus on its way into the market to take some of the place of the monetary stimulus that’s being withdrawn.”

The US consumer price index increased 0.1% from July, after no change in the prior month, Labor Department data showed. From a year earlier, prices climbed 8.3%, a slight deceleration but still more than the median estimate of 8.1%. So-called core CPI, which strips out the more volatile food and energy components, also topped forecasts.

The reversal in markets casts a dark shadow over the debate about the outlook for the global economy and markets. Bank of America Corp.’s latest survey showed the number of investors expecting a recession has reached the highest since May 2020.

A gauge of the dollar held most of its rally on the CPI report. The greenback’s strength weighed Asian currencies, with the Korean won among the big decliners.

The Nikkei reported that the Bank of Japan conducted a so-called rate check in the currency market, a move considered a precursor for intervention.

The People’s Bank of China set the daily reference rate for the yuan at the strongest bias on record versus the average estimate in a Bloomberg survey of analysts and traders.

“Many emerging markets are feeling the heat of the strong US dollar,” said Chi Lo, senior market strategist for Asia Pacific at BNP Paribas Asset Management, citing their debt burdens in greenbacks. “Only China can afford to defy this global rate-rise trend by keeping its easing policy stance.”

Bitcoin nursed a drop of more than 10% overnight, the biggest decline since cryptocurrencies plunged in June.

Here are some key events to watch this week:

• UK CPI, Wednesday
• US PPI, Wednesday
• US business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
• China home sales, retail sales, industrial production, fixed assets, surveyed jobless rate, Friday
• Euro area CPI, Friday
• US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.3% at 2:06 p.m. in Tokyo, after the index fell 4.3%
• Nasdaq 100 futures gained 0.2%. The index dropped 5.5%
• Topix index fell 1.9%
• Australia’s S&P/ASX 200 slid 2.4%
• Hang Seng Index dropped 2.4%
• Shanghai Composite Index decreased 1%
• Kospi index lost 1.3%
• Euro Stoxx 50 futures fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index fluctuated
• The euro rose 0.3% to 0.9995 versus the dollar
• The Japanese yen rose 0.6% to 143.67 per dollar
• The offshore yuan gained 0.3% to 6.9649 versus the dollar

Bonds

• The yield on 10-year Treasuries advanced one basis point to 3.42%
• Australia’s 10-year bond yield rose 10 basis points to 3.67%

Commodities

• West Texas Intermediate crude fell 0.6% to $86.77 per barrel
• Gold was at $1 703.47 an ounce