Asian Shares Decline as Bonds Extend Selloff: Markets Wrap
(Bloomberg) -- Asian equities declined for a second day as Wall Street stocks took a breather after notching their longest weekly rally this year. Bonds tumbled on cooling expectations of Federal Reserve rate cuts.
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The MSCI AC Asia Pacific Index fell as much as 1.1% as benchmarks in Australia and Japan declined while Chinese markets edged higher. That’s after equities in the US dropped from nearly overbought levels, following a relentless advance to all-time highs.
Treasuries’ 10-year yields jumped 11 basis points to 4.20% on Monday, after Federal Reserve Bank of Kansas City President Jeffrey Schmid said he favors a slower pace of interest-rate reductions given uncertainty about how low the US central bank should ultimately cut rates. Australian and New Zealand bonds fell in morning trading.
A multitude of factors are driving the bond selloff, including concerns over supply and better US economic data, Chris Weston, head of research at Pepperstone Group Ltd., wrote in a note. US election bets are also weighing on the market, with traders “front-running the risk of a ‘Red Sweep,’” he said, referring to the possibility of Republicans taking the White House and Congress.
“The trend higher is growing legs,” he said.
A presidential win for Donald Trump will stoke concerns of higher inflation given his campaign promises, which may push back rate cuts.
Focus remains on Beijing’s efforts to boost growth in its struggling economy via stimulus. On Monday, Chinese banks cut their benchmark lending rates after easing by the central bank at the end of September, part of a series of measures aimed at halting a housing market slump.
Chinese banks’ lending rate cuts will push some home loan costs to below 3%, which may drive a rebound in real estate demand, Shanghai Securities News reported Tuesday, citing analysts. “The real question is how much does that stimulus translate into easing financial conditions such that it creates a durable increase in demand,” Jim Caron CIO of Morgan Stanley Investment Management Portfolio Solutions Group, said on Bloomberg TV.
Japanese traders are keeping one eye on the runup to this coming weekend’s election. Support for Prime Minister Shigeru Ishiba’s ruling coalition is continuing to soften, indicating the possibility that the vote may result in a weakened and unstable administration.
The currency markets remain on tenterhooks as the yen weakened against the dollar overnight and is approaching the 151 level per dollar.
Wall Street faces a big earnings hurdle this week, with roughly 20% of the S&P 500 companies scheduled to report, with traders gearing up for key results from Tesla Inc. to Boeing Co. and United Parcel Service Inc.
The latest Bloomberg Markets Live Pulse survey shows respondents see Corporate America’s results as more crucial for the equity market’s performance than who wins the November election or even the Federal Reserve’s policy path.
Nvidia Corp. hit a record high, with the Nasdaq 100 up 0.2%. The Russell 2000 retreated 1.6%. Homebuilders tumbled. United Parcel Service Inc. sank on a sell recommendation at Barclays Plc. Boeing. rallied after a tentative agreement with its workers’ union.
Protection
Volatility is elevated for options on stocks, bonds and currencies alike as investors pay up for protection. The risks are clear: a hotly contested US election, interest-rate decisions in the US and Europe, the threat of a wider Middle East conflict and quarterly earnings. In the stock market, implied volatility is outpacing actual swings, and puts protecting against a selloff are favored over bullish calls.
To Matt Maley at Miller Tabak, no matter the reason, “we certainly cannot blame investors for buying some protection in the options market and/or gold.”
“With the stock market as expensive as it is (especially on a price/sales basis), it is much more vulnerable than usual when these kinds of political and geopolitical issues became significant concerns in the past,” he said.
Gold steadied, after hitting a record high in the previous session, as traders digested Federal Reserve officials’ views on US interest rates. Oil was down moderately after rising nearly 2% on Monday amid Middle East tensions.
Key events this week:
ECB’s Christine Lagarde is interviewed by Bloomberg Television, Tuesday
BOE’s Andrew Bailey as well as ECB’s Klaas Knot and Robert Holzmann to speak at Bloomberg Global Regulatory Forum in New York, Tuesday
Philadelphia Fed President Patrick Harker speaks, Tuesday
Canada rate decision, Wednesday
Eurozone consumer confidence, Wednesday
US existing home sales, Wednesday
Boeing, Tesla, Deutsche Bank earnings, Wednesday
Fed’s Beige Book, Wednesday
US new home sales, jobless claims, S&P Global Manufacturing and Services PMI, Thursday
UPS, Barclays earnings, Thursday
Fed’s Beth Hammack speaks, Thursday
US durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.1% as of 10:09 a.m. Tokyo time
Hang Seng futures fell 0.4%
Japan’s Topix fell 1.2%
Australia’s S&P/ASX 200 fell 1.3%
Euro Stoxx 50 futures rose 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0819
The Japanese yen rose 0.2% to 150.58 per dollar
The offshore yuan was little changed at 7.1358 per dollar
Cryptocurrencies
Bitcoin fell 0.7% to $67,266.85
Ether fell 1.4% to $2,637.68
Bonds
The yield on 10-year Treasuries declined one basis point to 4.19%
Japan’s 10-year yield advanced two basis points to 0.975%
Australia’s 10-year yield advanced 10 basis points to 4.37%
Commodities
West Texas Intermediate crude fell 0.4% to $70.28 a barrel
Spot gold rose 0.2% to $2,725.45 an ounce
This story was produced with the assistance of Bloomberg Automation.
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