Business Maverick: Asia stocks face pressure as rates outlook sours: markets wrap

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Stocks in Asia headed for declines on Friday after US equities fell for a second day and Treasury yields climbed as investors began to adjust for the prospect of higher interest rates as the Federal Reserve battles inflation.

Shares dropped in Australia and South Korea, and opened lower in China. The picture was different in Japan, with the Topix index and the Nikkei 225 posting small gains. The S&P 500 fell 0.9% on Thursday, reversing gains of almost 1%. The Nasdaq 100 fell by a similar margin and faces its first weekly decline this year.

Treasury yields continued their climbs across the curve on Friday, after investors pushed yields on the two-year Treasury above the 10-year’s bysince the early 1980s, a sign of flagging confidence in the economy’s ability to withstand additional Fed hikes. Australian three-year bond yields rose as much as 10 basis points as traders prepare for tighter policy from the country’s central bank.

Next week’s inflation update from the US offers a relevant potential inflection point in the Treasury yield curve, according to BMO strategists Benjamin Jeffery and Ian Lyngen. “Our expectations are that the market takes away sufficient angst regarding the prevailing inflation trend to press the inversion trade even further,” they wrote in a note.

Market pricing for US rates to peak in July inched higher as investors digested the fresh data and the drumbeat of central bankers signposting further tightening ahead. Fed Bank of Richmond president Thomas Barkin said it’s important to continue hiking to rein in inflation. His comments echoed sentiment from four Fed officials who spoke on Wednesday.

The yen fell while the dollar was broadly flat. The offshore yuan was also range-bound. Chinese inflation data showed consumer prices rose 2.1% in January from a year earlier, in line with market forecasts.

 

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