Asia Stocks Set to Decline, Dollar Extends Rally: Markets Wrap

2023-09-27 08:22

Asian stocks look set to follow Wall Street lower as investors contemplate a protracted period of higher interest

Asia Stocks Set to Decline, Dollar Extends Rally: Markets Wrap

Asian stocks look set to follow Wall Street lower as investors contemplate a protracted period of higher interest rates. The dollar enters a sixth day of gains.

Stock futures in Japan, Australia and Hong Kong all declined. The S&P 500 and Nasdaq 100 indexes both slumped 1.5% as Wall Street’s fear gauge — the Cboe Volatility Index or VIX — hit the highest since late May after US consumer confidence fell to a four-month low. The MSCI All Country World Index, one of the broadest measures of global equities, fell for an eighth day Tuesday, matching its longest losing streak in the past decade.

Yields on Treasuries remain near decade highs after a $48 billion Treasury auction of two-year notes was awarded at 5.085%, the highest since 2006. The Bloomberg dollar index advanced, setting a fresh 2023 peak in its strongest close since early December. The yen remains near 149 per dollar, keeping traders on edge for any step up in language from Japanese officials to gauge whether intervention to support the yen is on the horizon.

With the bond market guiding the direction for stocks and currencies, investors are pondering whether 10-year Treasury yields will extend gains, said Tony Sycamore, an analyst at IG in Sydney. If current levels break, “then there is little in the way of upside resistance until the 4.90%/5.00% region, which would likely unleash a violent response in equity markets.”

One Fed speaker after another in the past week has delivered emphatic messages that they will keep policy tighter for longer if the economy is stronger than expected. The Fed’s hikes have hit consumer sentiment which dropped to 103 from a revised 108.7 in August, missing the median estimate of 105.5 in a Bloomberg survey of economists.

Meanwhile, Senate Democratic and Republican leaders agreed Tuesday on a plan to keep the government open through mid-November and provide $6 billion in assistance to Ukraine. The plan to avert a shutdown on Oct. 1 still needs to overcome gridlock in the House.

Investors “seem to favor the cut-run manoeuvre this week,” said Stephen Innes, managing partner at SPI Asset Management. “Heightened investor anxiety due to the looming possibility of a partial US government shutdown is not helping matters.”

In Asia, traders will soon shift attention to Chinese industrial profits data due later Wednesday for clues into the health of the world’s second largest economy after fresh turmoil in the property sector. Australian inflation data will also be parsed for clues to the direction of Reserve Bank of Australia rate policy.

In commodities, oil resumed its climb, moving back above $90 a barrel, as the effect of rapidly tightening supplies outweighed a weakening risk appetite in broader markets, while gold held around $1,900 an ounce.

Key events this week:

China industrial profits, Wednesday
US durable goods, Wednesday
Eurozone economic confidence, consumer confidence, Thursday
US initial jobless claims, GDP, Thursday
Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
Eurozone CPI, Friday
Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
ECB President Christine Lagarde speaks, Friday
New York Fed President John Williams speaks, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.1% as of 8:30 a.m. Tokyo time. The S&P 500 fell 1.5% Tuesday
Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 1.5%
Nikkei 225 futures fell 0.6%
Hang Seng futures fell 0.3%
S&P/ASX 200 futures fell 0.3%

Currencies