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Asian equities fall on rates outlook; yen steady: markets wrap

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Asian stocks retreated as the Federal Reserve’s resolve to keep raising rates reduced the appetite for riskier assets. The yen stabilised after speculation that a shift is on the horizon for Japan’s monetary regime fueled early gains.

Shares dropped across the region, while US equity futures ticked higher after the S&P 500 and the tech-heavy Nasdaq 100 closed lower for a third day on Friday.

The yen was little changed around 136 per dollar and remained on course for a second daily gain, while the yield on Japan’s benchmark five-year note touched the highest level in more than seven years. The moves were supported by a report that the Japanese prime minister may consider allowing more flexibility in the monetary framework. A top government spokesman denied the report.

If such flexibility does translate into an exit from Japan’s yield-curve control policy or if it suggests a higher target for the 10-year government bond yield, “the markets will absolutely interpret that as bullish yen. In fact, they already are in advance of that,” Sue Trinh, head of macro strategy at Manulife Investment Management, said on Bloomberg Television.

At the same time, the dollar fell versus its major counterparts as investors cut long bets in the greenback while weighing the Fed’s outlook on rates.

Yields on US Treasuries edged higher, with the policy-sensitive two-year Treasury hovering close to 4.2%. Government bond yields rose in Australia and fell in New Zealand.

The risk of higher interest rates pushing the US into recession in 2023 is casting a pall over trading that’s winding down into year end.

Investors had cheered softer-than-expected US inflation data last week but that euphoria faded as Fed officials hammered home the message that rates would go higher for longer until they’re confident inflation has been subdued. A wave of rate hikes and hawkish outlooks from central banks across the globe, including the European Central Bank, have further bruised sentiment.

Meanwhile, traders are keeping an eye on a surge of Covid infections in China and a pledge by China’s top leaders to focus on boosting the economy next year, hinting at business-friendly policies, further support for the property market while likely scaling back fiscal stimulus.

“We’re done for the end of the year in terms of waiting for an amazing rally,” Sylvia Jablonski, chief investment officer at Defiance ETFs, said on Bloomberg Radio. However, “the market will look through the expectations of a future recession at some point and come back in because equities are starting to look cheaper and cheaper as we go along here.”

In commodities, oil climbed on China’s pledge to revive consumption and move by the US to refill its strategic crude reserves. Gold was little changed.

Key events this week:

  • China loan prime rates, Tuesday
  • Bank of Japan interest rate decision, Tuesday
  • US housing starts, Tuesday
  • EIA Crude Oil Inventory Report, Wednesday
  • US existing home sales, US Conference Board consumer confidence, Wednesday
  • US GDP, initial jobless claims, US Conf. Board leading index, Thursday
  • US consumer income, new home sales, US durable goods, PCE deflator, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 0.2% as of 1:22 p.m. in Tokyo. The S&P 500 fell 1.1% on Friday
  • Nasdaq 100 futures rose 0.2%. The Nasdaq 100 fell 0.9%
  • Japan’s Topix index fell 0.7%
  • South Korea’s Kospi index fell 0.6%
  • Hong Kong’s Hang Seng Index fell 0.5%
  • China’s Shanghai Composite Index fell 1.3%
  • Australia’s S&P/ASX 200 Index fell 0.2%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%
  • The euro rose 0.2% to $1.0607
  • The Japanese yen rose 0.3% to 136.21 per dollar
  • The offshore yuan was little changed at 6.9816 per dollar

Cryptocurrencies

  • Bitcoin fell 0.3% to $16 706.32
  • Ether fell 0.1% to $1,181

Bonds

  • The yield on 10-year Treasuries advanced three basis points to 3.51%
  • Australia’s 10-year yield advanced seven basis points to 3.52%

Commodities

  • West Texas Intermediate crude rose 1% to $75.02 a barrel
  • Spot gold was little changed

© 2022 Bloomberg

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