Asian stocks to fall as US bond sell-off hurts sentiment: market mixed

(Bloomberg) — Asian stocks were set to fall on Thursday after a weak Treasury auction dealt a fresh blow to sentiment on Wall Street.

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Futures for Japan, Australia and Hong Kong fell, while a gauge of U.S.-listed Chinese stocks fell 1.5%. Both the S&P 500 and the tech-heavy Nasdaq 100 fell, erasing early gains that were initially helped by dovish signals from the Bank of Japan. U.S. stock contracts also fell.

The central bank indicated on Wednesday that policymakers would not raise interest rates during periods of market volatility, leading to further weakness in the yen. The Japanese currency was slightly stronger on Thursday after falling 1.6% against the dollar on Wednesday.

Australian and New Zealand bonds fell in early trading following a sell-off in Treasury bonds on Wednesday that partly reflected weak demand for a 10-year auction. The 10-year yield rose five basis points to 3.94%. Treasury bonds also came under pressure as 17 blue-chip companies offered $31.8 billion in debt, the highest amount of investment-grade issuance in the US this year.

The auction result is “consistent with our view that we are due for a continued and higher yield correction in the near term,” said Zachary Griffiths, head of investment grade and U.S. macro strategy at CreditSights. “The reassessment of what was actually only a moderately weak payrolls report seems overblown.”

The sharp fall in the yen on Wednesday had repercussions on currency markets. The Mexican peso was one of the beneficiaries, rising 1.5% against the dollar. The Indonesian rupiah and Brazilian real also gained against the dollar on Wednesday.

The carry trade reversal triggered by the Bank of Japan’s aggressive stance last week, which supported the yen, has since eased, according to Quincy Krosby of LPL Financial.

“Global markets felt a sigh of relief as the speed of the reversal slowed, but the yen’s relationship to the dollar is also a key component of the carry trade calculation,” she noted. “A weaker dollar, driven by markets’ perception that the Fed will soon begin an easing cycle, should help support a stronger yen – a negative for trade.”

US markets

After gaining almost 2% to start the session, the S&P 500 closed down 0.8%. Nvidia Corp. led losses in megacaps. Super Micro Computer Inc. fell 20% on disappointing earnings. At the end of trading, Warner Bros. Discovery Inc., the parent company of CNN and TNT, plunged after posting a $9.1 billion charge as it slashed the value of its traditional TV networks.

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Earlier gains in stocks were fueled by confidence in Japan following huge swings in the country’s stock prices over the past week. The measures were compounded by the view that the Fed would cut rates more aggressively, prompting investors to quickly unwind once-popular yen-funded carry trades — including crowded positions in U.S. technology stocks.

Markets have been in turmoil since last week’s economic data fueled concerns that the Federal Reserve’s decision to keep rates at two-decade highs risks a deeper economic slowdown.

JPMorgan economists now predict a 35% chance that the US economy will enter a recession by the end of this year, up from 25% at the beginning of last month.

“Stocks remain vulnerable,” said Fawad Razaqzada of City Index and Forex.com. “More evidence of a bottom is needed to excite the bulls again. Overall, sentiment remained cautious. Few people were confident in buying this latest dip, especially with US CPI looming next week.”

Oil rose as investors remained nervous about the possibility of a retaliatory strike by Iran against Israel. Gold remained little changed on Thursday morning after five sessions of declines.

Main events this week:

• Industrial production in Germany, Thursday

• Initial unemployment claims in the US, Thursday

• Fed’s Thomas Barkin Speaks Thursday

• China PPI, CPI, Friday

Some of the main movements in the markets:

Actions

• S&P 500 futures were down 0.3% at 8:10 a.m. Tokyo time

• Hang Seng futures fell 0.9%

• S&P/ASX 200 futures fell 0.4%

Coins

• The Bloomberg Dollar Spot index was little changed

• The euro was little changed at $1.0930

• The Japanese yen rose 0.2% to 146.38 per dollar

• The offshore yuan was little changed at 7.1710 per dollar

• The Australian dollar was unchanged at $0.6519

Cryptocurrencies

• Bitcoin rose 0.4% to $55,374.62

• Ether rose 0.6% to $2,363.33

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This story was produced with help from Bloomberg Automation.

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