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Asian equities and bonds are set to slump after a broad-based selloff sent US shares to their worst day in more than two years on inflation data that fueled bets on jumbo hikes by the Federal Reserve. The dollar roared back.
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(Bloomberg) — Asian equities and bonds are set to slump after a broad-based selloff sent US shares to their worst day in more than two years on inflation data that fueled bets on jumbo hikes by the Federal Reserve. The dollar roared back.
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US equity index futures ticked higher on Wednesday after the S&P 500 fell more than 4% and the Nasdaq 100 tumbled more than 5%. Asia contracts signal stock indexes will drop more than 2% in Japan, Australia, Hong Kong and Taiwan. Swaps traders are certain the Fed will raise interest rates three-quarters of a percentage point next week with some wagers appearing for a full-point move.
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Read more: ‘They Should Do 100’: Traders Debate the Fed’s Next Rate Move
The two-year Treasury yield, the most sensitive to policy changes, jumped as much as 22 basis points, pushing it more than 30 basis points above the 10-year rate and deepening an inversion in what is generally a recession warning. Australian bond futures also tumbled overnight, with the implied three-year yield climbing 14 basis points, while New Zealand two-year rates are up 10 basis points this morning,
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“Headline inflation has peaked but, in a clear sign that the need to continue hiking rates is undiminished, core CPI is once again on the rise, confirming the very sticky nature of the US inflation problem,” Seema Shah, chief global strategist at Principal Global Investors, said in a note. “Until the Fed can tame that beast, there is simply no room for a discussion on pivots or pauses.”
The US consumer price index increased 0.1% from July, after no change in the prior month, Labor Department data showed Tuesday. From a year earlier, prices climbed 8.3%, a slight deceleration but still more than the median estimate of 8.1%. So-called core CPI, which strips out the more volatile food and energy components, also topped forecasts.
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Read more: Biggest Jump in US Rents Since 1991 Keeps Overall Inflation High
On the corporate front, Twitter Inc. shareholders approved Elon Musk’s proposed $44 billion buyout, paving the way for a trial next month.
The selloff in stocks erased nearly all the gains in the S&P 500’s biggest four-day surge since June. The reversal cast a dark shadow over the debate about the outlook for the global economy and markets. Bank of America Corp.’s latest survey showed the number of investors expecting a recession has reached the highest since May 2020.
A gauge of the dollar climbed more than 1%. Bitcoin tumbled more than 10%, the biggest decline since cryptocurrencies plunged in June, as the broad-based selloff in financial markets spilled over into the digital-asset sector.
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What’s your dollar bet ahead of the Fed decision? This week’s MLIV Pulse survey asks about the best trades ahead of the FOMC meeting. Please click here to share your views anonymously.
Here are some key events to watch this week:
- UK CPI, Wednesday
- US PPI, Wednesday
- US business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
- China home sales, retail sales, industrial production, fixed assets, surveyed jobless rate, Friday
- Euro area CPI, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% at 7:04 a.m. Tokyo, after the index fell 4.3%
- Nasdaq 100 futures fluctuated. The index dropped 5.5%
- Topix index contracts dropped 2.2%
- S&P/ASX 200 futures slid 2.3%
- The MSCI World index fell 3.7% on Tuesday
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Currencies
- The Bloomberg Dollar Spot Index rose 1.2%
- The euro was down 0.1% at $0.9962 after falling 1.5%
- The Japanese yen slipped 0.2% to 144.84 per dollar following a 1.2% decline
- Australia’s dollar fluctuated near 67.27 US cents after dropping 2.3%
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.41%
- Germany’s 10-year yield advanced eight basis points to 1.73%
- Britain’s 10-year yield advanced nine basis points to 3.17%
- Australian 10-year bond futures’ implied yield rose 10 basis points to 3.72%
Commodities
- West Texas Intermediate crude rose 0.2% to $87.53 per barrel
- Gold was at $1,700.94 an ounce after falling 1.3%
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