(Bloomberg) – Asian equities fell after US stocks fell and government bond yields held near multi-year highs as investors brace for a sharp hike in interest rates from a restrictive Federal Reserve.
Stocks fell in Japan, Hong Kong and Australia after the S&P 500 index fell more than 10% from its August high, capping its rally from this year’s low. US contracts fluctuated and European stock futures fell.
Two-year Treasury yields fell by nearly 4% as traders weigh the risk that monetary tightening will push the economy into recession. The Bank of Japan announced an unscheduled asset purchase operation to limit upward pressure on yields ahead of a policy decision later this week.
A dollar gauge traded near a record high amid market jitters while bitcoin fluctuated around the $19,000 mark. The offshore yuan fell to its lowest level against the greenback since mid-2020, even after the People’s Bank of China set the currency’s daily reference rate stronger-than-expected for a 20th day.
Fed officials are in the process of quantifying the “pain” they warned of as the central bank releases new economic forecasts on Wednesday. It is expected to rise again by 75 basis points, according to the vast majority of analysts polled by Bloomberg. Only two forecast a move of 100 basis points.
“Volumes remain low and sentiment subdued as few want to take big positions before hearing what the Fed says and where policymakers see rates going into the end of the tightening cycle,” said Fiona Cincotta, senior financial markets analyst at city index . “That’s going to drive markets, not tomorrow’s rate hike, but what the Fed plans next.”
Nouriel Roubini, who correctly predicted the 2008 financial crisis, sees a “long and ugly” recession in late 2022 that could last all of 2023 and a sharp correction for the S&P 500. “Even in a simple recession, the S&P 500 has been able to down 30%,” said the chairman of Roubini Macro Associates. A “really hard landing,” which he expects, could see it fall 40%.
Still, some professional speculators refuse to succumb to a punitive stock market prone to volatility — fueling bullish and bearish positions at the fastest rate in five years. As the S&P 500 plummeted last week, hedge funds bought individual stocks and bet against the broader market with products like exchange-traded funds, data from Goldman Sachs Group Inc.’s Prime Brokerage Show shows.
Christopher Smart, chief global strategist at Barings LLC, said weaker valuations continued to weigh on equity markets, while certain corners of credit markets remained attractive. “Investment grade and high yield are places where my peers find a lot of opportunities,” he said on Bloomberg Television. “The fundamentals of the US economy are very strong. They need to weaken a bit to alleviate some of that inflationary pressure, but there are a lot of companies with strong balance sheets.”
Elsewhere in markets, oil fluctuated around $84 a barrel as it headed for its first quarterly loss in more than two years amid concerns over energy demand. Gold has held steady near a two-year low.
Important events this week:
- Federal Reserve decision followed by press conference with Chairman Jerome Powell, Wednesday
- Big bank CEOs will testify in two hearings before the US Congress on Wednesday and Thursday
- US Existing Home Sales, Wednesday
- EIA crude oil inventory report, Wednesday
- Bank of Japan monetary policy decision, Thursday
- The Bank of England rate decision on Thursday
- US Conference Board benchmark index, Initial Jobless Claims, Thursday
Will the Nasdaq 100 Stock Index hit 10,000 or 14,000 first? This week’s MLIV Pulse survey focuses on technology. It’s short and we don’t collect your name or contact information. Please click here to share your opinion.
Some of the key movements in the markets:
- Futures on the S&P 500 were up 0.2% as of 1:01 p.m. in Tokyo. The S&P 500 fell 1.1%
- Nasdaq 100 futures were up 0.2%. The Nasdaq 100 fell 0.9%
- Japan’s Topix slipped 1.1%
- Australia’s S&P/ASX 200 index fell 1.4%
- South Korea’s Kospi index fell 0.8%
- The Hang Seng Index fell 1.5%
- Euro Stoxx 50 futures down 0.2%
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro remained stable at $0.9966
- The Japanese yen was at 143.82 per dollar
- The offshore yuan fell 0.3 to 7.0498 against the dollar
- 10-year government bond yield held steady at 3.56%
- The 10-year Australian government bond yield rose 9 basis points to 3.72%
- West Texas Intermediate Crude fell 0.5% to $84.01 a barrel
- Gold futures traded at $1,663.85 an ounce
©2022 Bloomberg LP