China buoys Asia stocks, Yen weakens after BOJ: Markets wrap

Chinese stocks rallied Thursday, running against the grain of declines across the region, while the 10-year Treasury yield drifted lower after touching the highest level in 16 years.

Shares in Japan, Australia and South Korea fell while those in mainland China and Hong Kong rose, capping a run of daily declines. Tech stocks were well bid in Chinese markets, with the Hang Seng Tech index up as much as 2.6%.

Gains for Chinese stocks likely reflects “short covering on expectations of more policy support measures over the weekend, just like the government’s moves in every weekend this month, said Steven Leung, an executive director at Uob Kay Hian Hong Kong Limited. Still, while “economic figures have shown some improvement, investor confidence remains weak,” he said.

US futures ticked slightly higher after the S&P 500 slid 1.6% on Thursday, the most since March, and all major US equity benchmarks slipped below their 100-day moving averages.

The yen weakened after the Bank of Japan held interest rates, its 10-year yield target and forward guidance unchanged. The central bank reiterated its expectation that inflation is decelerating. Earlier, consumer price data exceeded estimates, casting doubt on the BOJ’s expectation that price pressures will peak in 2023 and fall back toward the 2% target in coming years.

Treasury 10-year yields eased lower after initially rising on the long end of the curve in Asian trading, pushing the 10-year yield to 4.5%, the highest level since 2007. Australian and New Zealand bond yields also advanced, while the Bloomberg dollar index steadied. Rising Treasury yields on Thursday followed the latest reading on the US labor market, which reinforced the case for the Federal Reserve’s higher-for-longer stance.

Applications for US unemployment benefits fell to the lowest level since January last week, indicating a healthy labor market that continues to support the economy. The Fed on Wednesday held its target range, while updated quarterly projections showed most officials favored another rate hike in 2023.

“On net, it was a solid read from one of the closest to ‘real time’ employment data investors are afforded,” said Ian Lyngen at BMO Capital Markets. “It also marginally increases the chances the Fed hikes in November and certainly reinforces the Fed’s messaging regarding avoiding cuts as long as possible in 2024.”

India’s 10-year bond yield fell 7 basis points after JPMorgan Chase & Co. said it will include the country’s sovereign debt in its benchmark emerging-markets index, a move expected to draw heightened inflows from global investors.

Oil rose, in part supported by news that Russia would ban exports of diesel-type fuel and gasoline. Chevron Corp. and labor unions reached an agreement to end strikes at natural gas facilities in Australia. The threat of strike action had roiled global markets for the fuel.

Unprecedented loss

Bond investors’ pain isn’t over yet, even though the Fed is done raising interest rates, said Bill Gross, the former chief investment officer of Pacific Investment Management Co. In an investment outlook, Gross said bond markets are headed for an unprecedented third year of losses, because of sticky inflation and widening deficits.

Former Fed Bank of St. Louis President James Bullard said the central bank may need to raise rates further and hold them higher to guard against the risk of a reacceleration of inflation. Meantime, Former Treasury Secretary Lawrence Summers said policymakers are too optimistic with their latest set of economic projections.

Key events this week:

China’s Bund Summit, Friday
Eurozone S&P Global Eurozone PMIs, Friday
US S&P Global Manufacturing PMI, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 1:39 p.m. Tokyo time. The S&P 500 fell 1.6%
Nasdaq 100 futures rose 0.2%. The Nasdaq 100 fell 1.8%
Japan’s Topix fell 0.4%
Australia’s S&P/ASX 200 fell 0.3%
Hong Kong’s Hang Seng rose 1.2%
The Shanghai Composite rose 0.8%
Euro Stoxx 50 futures fell 0.2%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0655
The Japanese yen fell 0.3% to 148.04 per dollar
The offshore yuan rose 0.1% to 7.3051 per dollar

Cryptocurrencies

Bitcoin rose 0.2% to $26,656.9
Ether rose 0.4% to $1,595.1

Bonds

The yield on 10-year Treasuries was little changed at 4.49%
Japan’s 10-year yield was unchanged at 0.740%
Australia’s 10-year yield advanced six basis points to 4.36%

Commodities

West Texas Intermediate crude rose 0.8% to $90.34 a barrel
Spot gold rose 0.2% to $1 924.32 an ounce