Asian Equities Tumble After Wall Street Slump: Markets Wrap

(Bloomberg) — Shares in Asia declined after Wall Street saw the worst week for stocks and bonds this year as traders increased interest rate expectations ahead of crucial US inflation data due Tuesday.

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The negative sentiment reverberated across major indexes in Asia, with a regional equity benchmark headed for its lowest close in more than a month. Contracts for US stock futures slid. The S&P 500 ended last week 1.1% lower, while the tech-heavy Nasdaq 100 slipped 2.1%, the worst weekly performance this year for the two indexes. Bonds fell as well, with the Bloomberg Global Aggregate index dropping 1.6%, the worst weekly run since September.

The losses were driven by a repricing of interest-rate expectations as investors reassessed how high US borrowing costs are likely to rise this year. Market pricing now implies rates will peak at 5.2% in July, up from less than 5% a month ago.

Australian and New Zealand government bonds extended losses in early Asian trading following a selloff in US government bonds Friday that pushed up the 10-year Treasury yield by seven basis points.

The yen weakened after whipsawing Friday following news reports that Kazuo Ueda would be picked to become the Bank of Japan’s next governor. Investors initially interpreted the decision as a potentially hawkish choice. Those gains were trimmed after Ueda spoke to reporters and said the BOJ’s stimulus should stay in place. Japan’s government is set to officially announce the nomination of the new BOJ governor on Tuesday.

For the time being, Ueda seems to be more hawkish than the current dovish Governor Haruhiko Kuroda, according to Yujiro Goto, head of foreign-exchange strategy at Nomura Holdings Inc. “BOJ’s policy stance will be at least more neutral going forward and the fundamental is also pointing that monetary policy normalization is necessary,” he said on Bloomberg Television. “That will be still positive for Japanese yen in the medium term.”

Economists forecast US inflation data to be published Tuesday will show annual consumer-price gains slowing to 6.2%, which would be the lowest reading since late 2021. The data will provide much-needed direction for the Federal Open Market Committee to set interest rates.

“The next CPI report has become binary — markets will either breathe a huge sigh of relief, or risk aversion will accelerate,” said Eric Robertsen, global head of research and chief strategist for Standard Chartered Plc. “The more the FOMC is compelled to extend the rate-hiking cycle and postpone rate cuts, the more likely it is that the US will experience a hard landing, requiring more aggressive rate cuts later.”

Read More: Fed’s Harker Favors Rates Above 5%, Says Soft-Landing Odds Grow

Philadelphia Fed President Patrick Harker was the latest central banker to unveil expectations for rates to climb above 5% after a drum-beat of commentary last week that included a prediction from Minneapolis Fed President Neel Kashkari that the level would reach 5.4%.

Singapore on Monday reported 2022 economic growth at 3.6%, compared with 3.8% previously seen. The city state reaffirmed its growth forecast for this year at between 0.5% to 2.5% as authorities focus on combating stubborn core inflation and slowing demand.

Traders will also keep a keen eye on geopolitical developments after the Pentagon shot down an unidentified object that it tracked over Michigan, according to US officials familiar with the matter. This was the fourth time in eight days a balloon or high-flying craft has been shot down over the US or Canada.

Elsewhere, oil fell as Russia’s plan to curb supply in retaliation for western sanctions was offset by concerns about slowing global growth. Gold edged lower.

Key events:

India CPI, Fed Governor Michelle Bowman speaks at the American Bankers Association Monday
US CPI, UK jobless claims, Eurozone GDP, New York Fed President John Williams gives the keynote speech at New York Bankers Association event Tuesday
Japan’s new BOJ governor nomination Tuesday
US retail sales, UK CPI Wednesday
US jobless claims, Australia unemployment, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday
France CPI, Russia GDP Friday

Some of the main moves in markets as of 10:33 a.m. Tokyo time:

Stocks

S&P 500 futures fell 0.5%. The S&P 500 rose 0.2%
Nasdaq 100 futures fell 0.6%. The Nasdaq 100 fell 0.6%
Japan’s Topix index fell 0.8%
South Korea’s Kospi index fell 1%
Hong Kong’s Hang Seng Index fell 1.7%
China’s Shanghai Composite Index fell 0.2%
Australia’s S&P/ASX 200 Index fell 1.7%

Currencies

The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.2% to $1.0657
The Japanese yen fell 0.4% to 131.91 per dollar
The offshore yuan fell 0.3% to 6.8425 per dollar

Cryptocurrencies

Bitcoin fell 0.2% to $21,694.79
Ether fell 0.4% to $1,505.37

Bonds

Commodities

West Texas Intermediate crude fell 1% to $78.90 a barrel
Spot gold fell 0.4% to $1,858.42 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Ruth Carson and Masaki Kondo.