Asia Stocks to Fall as Fed Minutes Show Hike Bias: Markets Wrap

2023-07-06 07:18

Shares in Asia were poised for declines Thursday after Wall Street closed lower on hawkish signals from the

Asia Stocks to Fall as Fed Minutes Show Hike Bias: Markets Wrap

Shares in Asia were poised for declines Thursday after Wall Street closed lower on hawkish signals from the Federal Reserve’s latest meeting minutes.

Equity futures for benchmarks in Japan, Australia and Hong Kong fell. The S&P 500 declined 0.2% Wednesday while the Nasdaq 100 fell less than 0.1%. US futures were little changed in early Asian trading as investors also looked ahead to American jobs data over the next two days that will further illuminate the path for interest rates.

Australia’s 10-year bond yield rose around seven basis points while New Zealand’s rose five basis points following further selling in US government bonds. The 10-year Treasury yield jumped to 3.93% Wednesday and the two-year rate inched up to 4.94% — putting each maturity around the highest level since March.

The action was driven by Fed minutes showing division among policymakers over the decision to pause in the central bank’s June meeting, with the voting members on track to take rates higher this month.

“This adds to the high probability the Fed hikes again on July 26,” Ian Lyngen, a strategist with BMO Capital Markets wrote. “The FOMC minutes deliberately left investors with the impression that June’s pause was a close call and that a July hike is the committee’s base case scenario.”

A series of US employment reports due Thursday and Friday will be pivotal. The so-called JOLTS report of job openings is expected to show a tapering of available positions and a separate measure of jobless claims is anticipated to tick higher, in a sign of cooling in the labor market.

Meanwhile, Treasury Secretary Janet Yellen touches down in Beijing Thursday to attempt to further repair the relationship between the world’s two largest economies.

A news outlet backed by China’s central bank published commentary stating that the country has ample tools to stabilize the foreign exchange market even if the yuan suddenly weakens.

Separately, China’s largest banks reduced rates on the country’s $453 billion in corporate US dollar deposits. The cut was the second in a matter of weeks and signals a further attempt to shore up the struggling yuan.

Elsewhere in emerging markets, the central banks of Malaysia and Sri Lanka will hand down interest rate decisions Thursday.

Moves in currency markets were muted in early Asian trading. Traders are likely to have a keen eye on both the yuan and the yen again, with no end in sight for the downward pressure on these currencies.

Key Events This Week:

US initial jobless claims, trade, ISM services, job openings, Thursday
Dallas Fed President Lorie Logan speaks on a panel about the policy challenges for central banks at CEBRA meeting, Thursday
US unemployment rate, nonfarm payrolls, Friday
ECB’s Christine Lagarde addresses an event in France, Friday

Some of the main moves in markets today:

Stocks

S&P 500 futures were little changed as of 7:56 a.m. Tokyo time. The S&P 500 fell 0.2%
Nasdaq 100 futures were little changed. The Nasdaq 100 fell fractionally
Nikkei 225 futures fell 0.6%
Hang Seng futures fell 0.3%
S&P/ASX 200 futures fell 0.5%

Currencies