Asia Stocks Face Soft Open After Wall Street Slump: Markets Wrap

(Bloomberg) — Equity futures in Asia indicated declines for share markets across the region Monday after the worst week for stocks and bonds this year as traders increased interest rate expectations ahead of crucial US inflation data due Tuesday.

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Contracts for equity benchmarks in Japan and Hong Kong fell while shares in Australia were flat. The S&P 500 ended the week 1.1% lower, while the tech-heavy Nasdaq 100 fell 2.1%, the worst weekly performance this year for the two indexes. Bond markets also fell with the Bloomberg Global Aggregate bond index dropping 1.6%, the worst weekly run since September.

The action was driven by a swift repricing of interest rate expectations as investors reassess the prospect for US borrowing costs to peak this year. Market pricing now implies rates will peak at 5.2% in July, up from less than 5% a month ago.

Australian and New Zealand government bond yields jumped in early Asian trading following a selloff in US government bonds that pushed the 10-year Treasury yield 7 basis points higher Friday.

Economists forecast US consumer price index data to be published Tuesday will show inflation slowing to 6.2%, which would be the lowest reading since September 2021. The data will provide much-needed direction for the Federal Open Market Committee to set interest rates.

“The next CPI report has become binary – markets will either breathe a huge sigh of relief, or risk aversion will accelerate,” said Eric Robertsen, global head of research and chief strategist for Standard Chartered Plc. “The more the FOMC is compelled to extend the rate-hiking cycle and postpone rate cuts, the more likely it is that the US will experience a hard landing, requiring more aggressive rate cuts later.”

Story continues

Read: Fed’s Harker Favors Rates Above 5%, Says Soft-Landing Odds Grow

Philadelphia Fed President Patrick Harker was the latest central banker to unveil expectations for rates to climb above 5% after a drum-beat of commentary last week that included a prediction from Minneapolis Fed President Neel Kashkari that the level would reach 5.4%.

Traders will also keep a keen eye on geopolitical developments after the Pentagon shot down an unidentified object that it tracked over Michigan, according to US officials familiar with the matter. This was the fourth time in eight days a balloon or high-flying craft has been shot down over the US or Canada.

The price of oil rose to a two-week high as Russia said it plans to cut its oil output by 500,000 barrels a day next month, following through on a threat to retaliate against western energy sanctions.

The yen was flat after whipsawing Friday after news reports that Kazuo Ueda would be picked to become the Bank of Japan’s next governor. Investors initially interpreted the decision as likely a hawkish choice. Those gains were trimmed after Ueda spoke to reporters and said the BOJ’s stimulus should stay in place.

Key events:

• Singapore GDP, India CPI, Fed Governor Michelle Bowman speaks at the American Bankers Association Monday

• US CPI, UK jobless claims, Eurozone GDP, New York Fed President John Williams gives the keynote speech at New York Bankers Association event Tuesday

• US retail sales, UK CPI Wednesday

• US jobless claims, Australia unemployment, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday

• France CPI, Russia GDP Friday

Some of the main moves in markets as of 8 a.m. Tokyo time:

Stocks

• S&P 500 futures were little changed

• Nikkei 225 futures fell 0.2%

• Hang Seng futures fell 0.8%

• Australia’s S&P/ASX 200 was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0679

• The Japanese yen was little changed at 131.41 per dollar

• The offshore yuan was little changed at 6.8239 per dollar

Cryptocurrencies

• Bitcoin rose 0.2% to $21,794.97

• Ether rose 0.2% to $1,513.77

Bonds

Commodities

• West Texas Intermediate crude rose 0.3% to $79.95 a barrel

• Spot gold rose 0.2% to $1,865.57 an ounce

This story was produced with the assistance of Bloomberg Automation.

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