Equities slid while government bonds yields climbed in much of Asia and Treasuries held their sharp move from the previous session as investors reassessed the risks from inflation.
The unexpected decision by the Bank of Canada to restart its rate-hiking campaign on Wednesday — which followed an increase earlier in the week in Australia — continued to reverberate across global markets Thursday.
Traders have boosted wagers on Federal Reserve rate increases, with swaps close to pricing in a quarter-point hike for the July meeting. Benchmark 10-year yields rose around 15 basis points in Australia and while Japanese yields of the same maturity edged about two basis points higher. The yield on Australia’s three-year note touched the highest level since 2012.
Yields rose in India, even after the central bank kept rates unchanged. The governor mentioned the hikes in Australia and Canada — a possible hint at future increases amid the uncertain inflation outlook. Yields also climbed in Indonesia, the Philippines and Malaysia.
“Clearly we are not near the terminal rate as far as the western world is concerned,” said Madhavi Arora, lead economist for Emkay Global Financial Services Ltd. “There is a risk you may see further increases by the US Fed.”
The moves in Japan, meanwhile, were heavily influenced by GDP data that was much stronger than estimated, with the economy expanding 2.7% in the first quarter versus projections for 1.9% growth. The news also saw the yen strengthen.
Treasury yields stabilized in Asian trading after a sharp increase across the curve Wednesday that added 14 basis points to the 10-year benchmark.
A gauge of Asian equities fell, with the most notable weakness in Hong Kong-listed technology stocks. Benchmarks in Australia, South Korea and Japan also declined slightly.
Indian shares opened moderately higher, putting the Sensex benchmark on course for a fresh record high after a recent rally.
US futures edged lower after a decline on Wall Street on Wednesday. The S&P 500 fell for a second day this week and the Nasdaq 100 suffered its worst day since April as tech shares bore the brunt of jitters over higher rates. European futures were also lower.
“Given the rally that we’ve had, it would be normal to see a bit of a pause, particularly in the context that we see where rates might plateau quite soon, but stay higher for longer,” Virginie Maisonneuve, global chief investment officer for equities at Allianz Global Investors, said in an interview with Bloomberg Television.
Bridgewater Associates’ billionaire founder Ray Dalio said while interest rates won’t go much higher, the economy will get worse.
“We are at the beginning of a late, big-cycle debt crisis when you are producing too much debt and have a shortage of buyers,” Dalio said from the Bloomberg Invest conference in New York..
Elsewhere, gold advanced, while oil slid after a rally Wednesday and Bitcoin was little changed, hovering around $26,400.
Key events this week:
- Eurozone GDP, Thursday
- Rate decisions in India, Peru, Thursday
- US wholesale inventories, initial jobless claims, Thursday
- China PPI, CPI, Friday
Some of the main moves in markets:
- S&P 500 futures fell 0.2% as of 2:02 p.m. Tokyo time. The S&P 500 fell 0.4%
- Nasdaq 100 futures fell 0.4%. The Nasdaq 100 fell 1.8%
- Japan’s Topix fell 1.2%
- Australia’s S&P/ASX 200 fell 0.3%
- Hong Kong’s Hang Seng fell 0.5%
- The Shanghai Composite fell 0.2%
- Euro Stoxx 50 futures fell 0.4%
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.1% to $1.0713
- The Japanese yen rose 0.3% to 139.67 per dollar
- The offshore yuan was little changed at 7.1484 per dollar
- The Australian dollar rose 0.1% to $0.6661
- The British pound rose 0.1% to $1.2455
- Bitcoin rose 0.2% to $26,425.18
- Ether fell 0.1% to $1,839.65
- The yield on 10-year Treasuries declined one basis point to 3.79%
- Japan’s 10-year yield advanced two basis points to 0.430%
- Australia’s 10-year yield advanced 15 basis points to 3.97%
- West Texas Intermediate crude fell 0.3% to $72.33 a barrel
- Spot gold rose 0.4% to $1 947.06 an ounce
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