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Stocks Drop as Bond Selloff Deepens, Dollar Gains: Markets Wrap

Business

(Bloomberg) — Global equities dropped and bonds in Asia fell as a jump in Treasury yields overnight and hawkish remarks from a Federal Reserve speaker weighed on the risk mood.

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European and US stocks futures edged lower, while the MSCI Asia Pacific Index slid for a second day. A selloff in Australian bonds deepened after inflation figures topped estimates, while Japanese benchmark yields hit their highest since 2011. The dollar strengthened against most G-10 currencies.

Treasuries steadied in Asia after falling on a pair of weak US note sales and ahead of the Fed’s favorite price gauge due later this week. China’s yuan slid to the lowest since November amid signs policymakers are letting the currency drop against a resilient greenback.

“The early reaction is to the higher rates in US, and resilient consumer confidence data out of US reinforcing risks of rates staying higher for longer,” said Xin-Yao Ng, investment director at Abrdn. “That’s generally negative for Asia since it supports a stronger dollar over Asian currency.”

The yen held near an almost 16-year low against the pound. The Japanese currency is sliding faster against the euro than the dollar as speculation grows that the European Central Bank will take it slow in cutting interest rates because inflation remains elevated.

Bank of Japan Board Member Seiji Adachi acknowledged it’s possible that yen weakness could spur price gains and prompt authorities to consider another rate hike earlier than expected.

Oil extended gains as another attack in the Red Sea added to heightened geopolitical tensions in the Middle East ahead of an OPEC+ meeting on the weekend. West Texas Intermediate climbed above $80 a barrel.

“The surge in oil prices and the rise in bond yields both in the US and in Japan are likely to make for a softer start to today’s trading session in Asia,” said Tony Sycamore, market analyst at IG Australia in Sydney.

In the corporate news, Lenovo Group said it plans to sell $2 billion worth of zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund, part of a broader strategic pact with the tech-hungry kingdom.

Investors also waded through remarks from Fed’s Neel Kashkari, who said the central bank’s policy stance is restrictive, but officials haven’t entirely ruled out additional rate hikes.

Bond traders who are stuck in a waiting game over Fed rate policy may soon get some welcome support.

Starting on Wednesday, and for the first time since the early 2000s, the Treasury Department will launch a series of buybacks targeting seasoned and harder-to-trade debt. Then in June, the US central bank is set to begin tapering the pace of its balance-sheet unwind, known as quantitative tightening, or QT.

The Fed’s first-line inflation gauge is about to show some modest relief from stubborn price pressures, corroborating central bankers’ prudence about the timing of interest-rate cuts.

Economists expect the personal consumption expenditures price index minus food and energy — due on Friday — to rise 0.2% in April. That would mark the smallest advance so far this year for the measure, which provides a better snapshot of underlying inflation.

Swap contracts are currently pricing in around 30 basis points of Fed rate cuts for all of 2024 — which equates to one reduction as the Fed moves have historically been increments of 25 basis points.

Key events this week:

  • Germany CPI, Wednesday

  • Fed’s Beige Book, Wednesday

  • Fed’s John Williams speaks, Wednesday

  • Eurozone economic confidence, unemployment, consumer confidence, Thursday

  • US initial jobless claims, GDP, wholesale inventories, Thursday

  • Fed’s John Williams and Lorie Logan speak, Thursday

  • Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday

  • China official manufacturing and non-manufacturing PMI, Friday

  • Eurozone CPI, Friday

  • US consumer income, spending, PCE deflator, Friday

  • Fed’s Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.4% as of 2:39 a.m. London time

  • Nikkei 225 futures (OSE) fell 0.7%

  • Japan’s Topix fell 0.9%

  • Australia’s S&P/ASX 200 fell 1.1%

  • Hong Kong’s Hang Seng fell 1.6%

  • The Shanghai Composite was little changed

  • Euro Stoxx 50 futures fell 0.2%

  • Nasdaq 100 futures fell 0.4%

  • Australia’s S&P/ASX 200 fell 1.1%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1%

  • The euro fell 0.1% to $1.0846

  • The Japanese yen was little changed at 157.24 per dollar

  • The offshore yuan was little changed at 7.2669 per dollar

  • The Australian dollar was little changed at $0.6647

  • The British pound was little changed at $1.2753

Cryptocurrencies

  • Bitcoin rose 0.6% to $68,680.63

  • Ether rose 1.1% to $3,871.64

Bonds

  • The yield on 10-year Treasuries advanced one basis point to 4.56%

  • Japan’s 10-year yield advanced 3.5 basis points to 1.070%

  • Australia’s 10-year yield advanced 15 basis points to 4.41%

Commodities

  • West Texas Intermediate crude rose 0.4% to $80.15 a barrel

  • Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rob Verdonck and Tassia Sipahutar.

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