Stocks, US Futures Fall; Yields Up on Rate Hikes: Markets Wrap

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Asian stocks and US equity futures extended declines following another day of losses for US shares and surging Treasury yields that underscore expectations for tighter monetary policy and a slowing global economy.

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(Bloomberg) — Asian stocks and US equity futures extended declines following another day of losses for US shares and surging Treasury yields that underscore expectations for tighter monetary policy and a slowing global economy. 

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The MSCI Asia Pacific Index posted deeper losses on Friday and was headed for a sixth weekly decline, the longest streak since May. Equities fell in Hong Kong, Australia and South Korea after the S&P 500 Index closed at the lowest level since June.

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Goldman Sachs Group Inc. slashed its year-end target for the S&P 500 to 3,600 from 4,300, arguing that a dramatic shift in the outlook for interest rates moving higher will weigh on valuations for US equities.

The 10-year Treasury yield soared 18 basis points to pierce 3.7% on Thursday, its highest in a decade as investors weighed the risk of recession. Yields in Asia pushed higher, led by a jump of more than 20 basis points in Australia as trading resumed there after a holiday.

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There is no trading of cash Treasuries in Asian hours with markets closed in Japan for Autumnal Equinox Day. 

A dollar gauge held near a record high 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 offshore yuan weakened in the face of efforts to slow the depreciation, with the People’s Bank of China setting the daily reference rate stronger than expected for a 22nd day.

Japan’s 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. 

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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.

Elsewhere in markets, gold edged toward a two-year low and Bitcoin pushed higher, extending gains to a second day, while remaining below $20,000. Oil slid as it headed toward a fourth weekly loss.

The energy market faces a very volatile last quarter of the year, Amrita Sen, co-founder and research director of Energy Aspects Ltd. said on Bloomberg Television. “It’s just too many different and contradictory factors driving prices right now,” she said, citing demand concerns from recessionary fears and supply constraints relating to Iran and Russia, as well as a lack of spare capacity from OPEC.

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Here are some of the main moves in markets:

Stocks

  • S&P 500 futures lost 0.3% as of 12:25 p.m. in Singapore. The S&P 500 fell 0.8%
  • Nasdaq 100 futures dropped 0.4%. The Nasdaq 100 dropped 1.2%
  • Hong Kong’s Hang Seng Index fell 0.9%
  • China’s Shanghai Composite Index slipped 1.1%
  • South Korea’s Kospi index tumbled 1.9%
  • Australia’s S&P/ASX 200 Index retreated 2.2%
  • Euro Stoxx 50 futures were down 0.1%

Currencies

  • The Bloomberg Dollar Spot Index was up 0.1%
  • The euro was down 0.1% to $0.9824
  • The Japanese yen strengthened 0.1% at 142.23 per dollar
  • The offshore yuan weakened 0.3% to 7.1060 versus the dollar

Bonds

  • The yield on 10-year Treasuries advanced more than 18 basis points to 3.71%
  • Australia’s 10-year yield jumped mpre than 25 basis points to 3.92%

Commodities

  • West Texas Intermediate crude fell 0.5% to $83.04 a barrel
  • Gold slipped 0.1% to $1,669.26 an ounce

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