Asian stocks were set for a mixed open to the last day of the quarter on Friday following a choppy session for US equities as Treasury yields soared on bets on further tightening by the Federal Reserve.
Contracts for benchmarks in Hong Kong and Japan posted modest declines while those for Australia pointed to a small gain. As the first half draws to a close, Japan’s Topix has ratcheted up a gain of more than 20% while Chinese equities are in the red.
A small advance in the S&P 500 on Thursday came amid instability as traders adjusted their positions at the end of the quarter.
A selloff in bonds saw two-year yields jump 15 basis points as investors moved closer to Fed’s view for tighter monetary policy in the coming months. Swap markets now indicate a nearly 50% chance of a second Fed hike by year-end. The dollar rose.
A key focus of the Asia day will be PMI data from China, with continued weakness in manufacturing expected amid concern the government isn’t doing enough to stimulate the economy.
The yuan remains under the spotlight after sliding to its lowest level in seven months. It is down almost 5% against the dollar this year, prompting extra scrutiny from Chinese regulators, according to people familiar with the matter.
Tokyo inflation figures will provide an early snapshot of the likely price picture for all of Japan, with economists projecting an uptick. It may not be enough to take downward pressure off the yen, which is nudging toward the 145 level versus the dollar amid the sharp divergence in policy between the Fed and the Bank of Japan.
Thursday’s readings on US jobless claims and the gross domestic product showed the US economy is in better shape than many had envisioned at the start of 2023. While key gauges of inflation closely watched by the Fed have been revised down slightly, they still remain well above the central bank’s 2% target.
Banks led gains on the S&P 500 as the biggest lenders passed the Fed’s stress test, clearing the way for payouts. The Nasdaq 100 underperformed after soaring over 35% this year, buoyed by the artificial-intelligence hype.
“The market is processing the recent strength in the economic data in both positive and negative ways,” said Carol Schleif, chief investment officer at BMO Family Office. “Solid economic data means that the economy is more resilient, but it also emboldens the Federal Reserve to keep raising interest rates.”
After Thursday’s data came out, the US curve inversion intensified — with longer-dated yields rising less than shorter-maturity ones.
That means: the economy may look stronger now, but investors expect the Fed’s rate increases to curb future growth, which could boost the risk of a recession down the road.
Key events this week:
- China manufacturing PMI, non-manufacturing PMI, balance of payments, Friday
- US personal income and spending, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 7:30 a.m. Tokyo time. The S&P 500 rose 0.45%
- Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.2%
- Hang Seng futures fell 0.2%
- Nikkei 225 futures fell 0.2%
- S&P/ASX 200 futures rose 0.2%
Currencies
- The euro was little changed at $1.0866
- The Japanese yen was unchanged at 144.76 per dollar
- The offshore yuan was little changed at 7.2680 per dollar
- The Australian dollar was little changed at $0.6618
Cryptocurrencies
- Bitcoin rose 0.1% to $30,441.25
- Ether rose 0.2% to $1,852.25
Bonds
- The yield on 10-year Treasuries advanced 13 basis points to 3.84%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Rita Nazareth.