(Bloomberg) — Stocks in Asia are set to follow US peers lower after a selloff in Treasuries deepened on bets the Federal Reserve won’t cut interest rates again before July because of inflation risks.
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Futures indicated declines in Tokyo, Hong Kong and Sydney, after the S&P 500 fell more than 1% following a report on US service providers that showed a price gauge at the highest since early 2023. A drop in big tech weighed heavily on trading, with Nvidia Corp. sinking more than 6% after a surge to all-time highs. Treasuries fell across the curve, and a $39 billion sale of 10-year bonds drew the highest yield since 2007.
“Rising yields are not necessarily an issue for stocks unless, of course, the economy starts to fail. Then all bets are off,” said Kenny Polcari at SlateStone Wealth. “But rising yields will be an issue if inflation rears its ugly head.”
Traders, who as recently as late September were fully pricing in another Fed rate cut by March, scrapped wagers that there will be one until the second half of the year. Separate data Tuesday showed job openings rose to a six-month high in November, boosted by a jump in business services — while other industries showed more mixed demand for workers.
To Mark Streiber at FHN Financial, the latest US services report supports the Fed’s recent communication that rate cuts would likely slow in 2025 due to upside price risks. Fed Bank of Atlanta President Raphael Bostic said officials should be cautious given uneven progress on lowering inflation.
“The Fed will likely switch from cutting interest rates at every decision, as they did between September and December, to pausing in between rate cuts in 2025,” said Bill Adams at Comerica Bank.
The S&P 500 fell 1.1%. The Nasdaq 100 slid 1.8%. A gauge of the “Magnificent Seven” megacaps sank 2.5%. The yield on 10-year Treasuries climbed six basis points to 4.68%. In the UK, 30-year yields hit the highest since 1998, raising the prospect of tax increases to meet fiscal rules. Bitcoin dropped below $100,000. Oil and gold rose.
Australia’s 10-year yield mirrored US moves early Wednesday, rising five basis points.
With Treasury yields climbing again, Bank of America Corp. strategists predict traders could return to perceiving strong economic data as negative, as it signals the Fed will need to keep rates elevated for longer.
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Another indication of bond market anxiety can be seen in a metric called the term premium, which is the additional yield that investors demand to hold long-dated debt instead of rolling over shorter-term securities as they mature. It recently hit the highest level since 2015.
The 10-year yield has now risen more than one full percentage point since its close on the day before the Fed’s first rate cut in mid-September, noted Bespoke Investment Group strategists. Around current levels, it’s right on the cusp of “extreme cheap” territory, using the firm’s fair value model.
“Even though we’d love to say that the worst is over, there’s no indication that shorts are exhausted or that data is supportive of a duration rally,” said Thomas Tzitzouris at Strategas. “That could change by Friday, with the jobs number, and we have to assume that there will be some profit taking on duration shorts by tomorrow, with equity markets being closed on Thursday.”
Key events this week:
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Eurozone PPI, consumer confidence, Wednesday
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US ADP employment, Fed minutes, consumer credit, Wednesday
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Fed’s Christopher Waller speaks, Wednesday
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China CPI, PPI, Thursday
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Eurozone retail sales, Thursday
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US state funeral and national day of mourning for former President Jimmy Carter is a federal holiday, Thursday
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Fed’s Patrick Harker, Thomas Barkin, Jeff Schmid and Michelle Bowman speak, Thursday
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Japan household spending, leading index, Friday
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US jobs report, consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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Hang Seng futures fell 0.2% as of 7:21 a.m. Tokyo time
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Nikkei 225 futures fell 0.7%
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S&P/ASX 200 futures fell 0.1%
Currencies
Cryptocurrencies
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Bitcoin rose 0.5% to $96,986.32
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Ether rose 0.7% to $3,386.63
Bonds
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth.
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