(Bloomberg) — Asian stocks face the prospect of a sixth weekly decline following another day of losses for US shares and surging Treasury yields that underscore expectations for tighter monetary policy and a slowing global economy.
Equity futures fell for benchmarks in Hong Kong and Australia while US contracts inched higher. The S&P 500 closed at the lowest level since June and the 10-year yield soared 18 basis points to pierce 3.7%, its highest in a decade.
A dollar gauge ended fractionally higher but at a record after a day of dramatic moves in currency markets that saw Japan intervene to prop up the ailing yen for the first time since 1998.
The intervention hasn’t addressed the underlying cause of yen weakness — the yawning gap between Japan’s ultra-loose monetary policy and rising rates in other countries — leaving the currency vulnerable.
Rate hikes overnight in the UK, Switzerland and Norway, along with increases Thursday in Asia in the Philippines, Indonesia and Taiwan, look set to damp market sentiment in the region.
Japan will be closed for a holiday Friday and there will be no trading of cash Treasuries in Asian hours.
The Federal Reserve has given its clearest signal yet that it’s willing to tolerate a recession as the necessary trade-off for regaining control of inflation, with officials forecasting a further 1.25 percentage points of tightening before year-end.
“We see this new even-higher-for-longer rate path as associated with a substantially greater higher likelihood of a hard landing, and so not just unambiguously hawkish but unambiguously bad for risk,” said Krishna Guha, vice chairman of Evercore ISI.
The environment isn’t suitable for strong directional positioning on overall indexes, according to Mark Haefele at UBS Global Wealth Management. However, he advises against retreating to the sidelines, “especially given the drag on cash from high inflation and the challenge of timing a return to markets without missing out on rebounds.”
“Instead, we stay invested but also selective, and focus our preferences on the themes of defensives, income, value, diversification, and security,” he added.
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Here are some of the main moves in markets:
- S&P 500 futures rose 0.2% as of 7:25 a.m. in Tokyo. The S&P 500 fell 0.8%
- Nasdaq 100 futures gained 0.2%. The Nasdaq 100 dropped 1.2%
- Australia’s S&P/ASX 200 Index futures slipped 0.3%
- Hang Seng Index futures dropped 0.4%
- The Bloomberg Dollar Spot Index was little changed
- The Japanese yen traded at 142.45 per dollar
- The offshore yuan was at 7.0826 versus the dollar
- The euro was steady at $0.9835
- The yield on 10-year Treasuries advanced 18 basis points to 3.71%
- West Texas Intermediate crude traded at $83.43 a barrel
- Gold was at $1,671.14 an ounce
©2022 Bloomberg L.P.