(Bloomberg) — Equity futures in Asia pointed to a downside on Monday for stock markets across the region after the worst week for stocks and bonds this year as traders weighed interest rates ahead of key U.S. inflation data due on Tuesday. Had raised expectations.
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Equity benchmark contracts in Japan and Hong Kong fell while those in Australia were flat. The S&P 500 ended the week lower by 1.1%, while the tech-heavy Nasdaq 100 fell 2.1%, the worst weekly performance for the two indexes this year. Bond markets also fell, with the Bloomberg Global Aggregate Bond Index falling 1.6% in its worst weekly run since September.
The action was prompted by a rapid reassessment of interest rate expectations as investors reassess the likelihood of US borrowing costs peaking this year. Market pricing means rates will peak at 5.2% in July, down from 5% a month earlier.
Australian and New Zealand 10-year yields rose 10 basis points each in early Asian trade after a selloff in US government bonds followed a 7 basis point rise in 10-year Treasury yields.
Economists expect US consumer price index data to be published on Tuesday will slow inflation to 6.2%, the lowest reading since September 2021. The data will provide much-needed direction to the Federal Open Market Committee on setting interest rates.
“The next CPI report has become binary – markets will either breathe a sigh of relief, or risk aversion will accelerate,” said Eric Robertson, global head of research and chief strategist at Standard Chartered plc. “The more the FOMC is forced to extend the rate-hike cycle and postpone rate cuts, the more likely the US will experience a hard landing, necessitating more aggressive rate cuts later.”
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Read: Fed’s Harker Favors Rates Above 5%, Says Soft-Landing Odds Grow
Philadelphia Fed President Patrick Harker was the latest central banker to reveal expectations for rates to climb above 5% after a drum-beat of commentary last week that included Minneapolis Fed President Neel Kashkari’s prediction that the level would reach 5.4%. Will go
Traders will also keep a close eye on geopolitical developments after the Pentagon shot down an unidentified object it tracked over Michigan, according to US officials familiar with the matter. It was the fourth time in eight days that a balloon or high-flying vehicle was shot down over the US or Canada.
Oil prices hit a two-week high as Russia said it plans to cut its oil output by 500,000 barrels per day next month, following threats of retaliation against Western energy sanctions.
The yen was flat after whipsawing on Friday following news reports that Kazuo Ueda would be chosen to be the next governor of the Bank of Japan. Investors initially interpreted the decision as an aggressive move. Those gains were trimmed after Ueda spoke to reporters and said the BoJ’s stimulus should remain.
Some major moves in the markets as of 7:18 am Tokyo time:
Japan’s Topix index futures fell 0.2%
Hang Seng futures fell 0.8%
S&P/ASX 200 futures were unchanged
Bitcoin fell 0.1% to $21,795.71
Ether fell 1.3% to $1,514.78
West Texas Intermediate crude rose 2.1% to $79.72 a barrel
Spot gold rose 0.2% to $1,865.57 an ounce
This story was produced with assistance from Bloomberg Automation.
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