Asia’s stocks are expected to open neutral following a rise in Treasury yields, which impacted on US shares, and oil, which extended a surge fueled by supply concerns.
Japan and Australia futures dipped, while Hong Kong contracts increased. Futures in the United States remained relatively unchanged. Investors exited growth stocks after the benchmark 10-year US Treasury yield temporarily surpassed 1.5 percent, the highest level since June. The Nasdaq 100, which is heavily weighted toward technology, underperformed. The S&P 500 index fell, while economically sensitive companies – such as energy, banking, and smaller firms – climbed.
Republicans in the Senate blocked a package that would have extended the debt ceiling suspension through December 2022 and kept the government working past September 30.
Oil prices continued to rise on fears of a worldwide energy shortage. Brent crude reached its highest level in over three years, while WTI crude surpassed $75 per barrel. According to Goldman Sachs Group Inc., Brent might reach $90 by year’s end due to a larger market gap than people believe.
The increase in rates exacerbated concerns about elevated asset values, particularly in the technology sector, which has been the engine of the bull market run. Traders are ready expecting the Federal Reserve to begin cutting asset purchases as soon as November, following a shift toward hawkishness. In recent weeks, investors have faced a slew of dangers, including fractures in China’s housing market.
“For some time, central bankers have articulated how they intend to ‘normalise’ monetary policy. That process might begin soon,” Chris Iggo, AXA Investment Managers’ chief investment officer for core investments, wrote in a note. “This revelation has the potential to cause some volatility in interest rates and equity markets.”
Fed Governor Lael Brainard stated that the labour market may soon fulfil her standard for reducing asset purchases, although the Covid-19 delta version may increase inflation risks. John Williams of the New York Fed stated that a reduction in bond purchases may be necessary soon, while Charles Evans of the Chicago Fed expects a “first move” toward hiking rates in 2023.
Meanwhile, Fed Chair Jerome Powell stated that supply constraints have lasted longer than expected, and he anticipates inflation pressures to continue elevated in the coming months before easing.
Here are some events to watch this week:
- Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen to testify at a Senate Banking Committee hearing Tuesday
- European Central Bank President Christine Lagarde speaks Tuesday at the ECB Forum on Central Banking
- Japan’s ruling party votes to elect leader, Wednesday
- Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday
- House Financial Services Committee hearing on the Fed, Treasury’s pandemic response, Thursday
- China Caixin manufacturing PMI, non-manufacturing PMI, Thursday
- Univ. of Michigan sentiment, ISM manufacturing, U.S. construction spending, spending/personal income Friday
Some of the main moves in markets:
- S&P 500 futures were little changed as of 7:33 a.m. in Tokyo. The S&P 500 fell 0.3%
- Nasdaq 100 futures dipped. The Nasdaq 100 fell 0.8%
- Nikkei 225 futures were little changed
- Australia’s S&P/ASX 200 Index futures fell 0.6%
- Hang Seng Index futures rose 0.5%
- The Japanese yen was at 110.98 per dollar
- The offshore yuan traded at 6.4593 per dollar
- The Bloomberg Dollar Spot Index was little changed
- The euro was at $1.1696
- The yield on 10-year Treasuries rose three basis points to 1.49%
- West Texas Intermediate crude was at $75.46 a barrel
- Gold was at $1,750.93