Shares in Asia fell after Jerome Powell warned interest rates may have to climb further, stunting a rally in stocks and bonds and sending investors back to the dollar.
Shares fell in Australia, Japan and South Korea while equity futures for Hong Kong also declined in moves that tracked a drop for the S&P 500 on Thursday. The US benchmark slipped 0.8%, ending eight days of gains — it’s best run since 2021. The Nasdaq 100 fell by the same margin, and contracts for the two US indexes edged lower early Friday.
Treasuries steadied in Asia after tumbling Thursday to undo part of this week’s sharp rally, with the spike in yields the largest for the longer tenures. A weak sale of 30-year notes also weighed on sentiment, raising concern about the market’s ability to absorb new debt.
Federal Reserve Chair Powell said officials won’t hesitate to tighten policy further if needed. While that’s essentially what several Fed speakers have been saying, it’s the part that drew investors attention Thursday — especially after a rally in both equities and bonds. Powell’s comments made traders price in slightly higher odds of an additional hike, while pushing back the first anticipated 25-basis point rate cut to July from June.
“Any sense that Powell’s commitment to higher-for-longer has waned will be expressed as a drift lower in front-end yields,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery, in a note. “That complicates the Fed’s task of keeping both policy rates and financial conditions tight enough to accomplish its objective of reestablishing price stability.”
The Bloomberg dollar index was little changed in Asian trading after rising by the most since early October on Thursday as the greenback strengthened against major currencies. The yen traded above 151 per dollar, while the Korean won led declines in Asia.
Powell’s “sterner tone” suggests an effort to lean against further easing of financial conditions, hold rate cut expectations at bay and keep open the option of hiking further, according to Krishna Guha, vice chairman and head of central bank strategy for Evercore ISI.
In Asia, Japan money stock data for October came in line with the prior month. Meanwhile, the Reserve Bank of Australia sees inflation only returning to the top of its 2-3% target by end-2025, underscoring its decision to resume raising interest rates this week.
In China, new lending and money supply data may be released as soon as today. Investors will also gauge the impact of a cyberattack on the Industrial & Commercial Bank of China Ltd., that prevented the lender from clearing trades.
Elsewhere, Bitcoin topped $36,000, climbing past Terra crash level, in a win for bruised bulls. West Texas Intermediate edged lower, partly undoing a Thursday rally, to trade just below $76 per barrel.
Key events this week:
- ECB President Christine Lagarde participates in fireside chat, Friday
- US University of Michigan consumer sentiment, Friday
- Dallas Fed President Lorie Logan and her Atlanta counterpart Raphael Bostic speak, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.1% as of 9:44 a.m. Tokyo time. The S&P 500 fell 0.8%
- Nasdaq 100 futures were down 0.2%. The Nasdaq 100 fell 0.8%
- Hang Seng futures fell 0.3%
- Japan’s Topix fell 0.8%
- Australia’s S&P/ASX 200 fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0665
- The Japanese yen was little changed at 151.34 per dollar
- The offshore yuan was little changed at 7.3016 per dollar
- The Australian dollar fell 0.2% to $0.6353
Cryptocurrencies
- Bitcoin was little changed at $36,539.48
- Ether rose 2% to $2,100.75
Bonds
- The yield on 10-year Treasuries advanced one basis point to 4.64%
- Japan’s 10-year yield advanced three basis points to 0.860%
- Australia’s 10-year yield advanced 11 basis points to 4.64%
Commodities
- West Texas Intermediate crude fell 0.3% to $75.50 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Rita Nazareth.