(Bloomberg) — Asian equity futures were muted as US stocks and Treasuries fell after strong retail sales data cast fresh doubt on the prospect the Federal Reserve will cut rates in March.
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Contracts for benchmarks in Japan were little changed while those for Australia edged lower and futures for Hong Kong rose slightly. The S&P 500 and Nasdaq 100 both fell 0.6% Wednesday, pushing volatility higher. The VIX index, Wall Street’s so-called fear gauge, climbed to levels not seen since November.
Treasuries suffered a second day of selling, concentrated on the short end of the curve. The policy-sensitive two-year yield rose 14 basis points, its biggest one-day increase since June. The 10-year rose five basis points to above 4.1% for the first time in more than a month. Australian and New Zealand yields also traded higher early Thursday.
Jason Draho at UBS Global Wealth Management says that it’s unlikely to be a smooth path for markets.
“Investors will be debating the type of soft landing, stage of the cycle, and the macro regime, and the wide dispersion of views now could quickly evolve based on new data,” Draho said. “That could lead to quick and dramatic market pivots to price in shifting consensus views.”
The drop in bond prices reflected a shift in investor expectations for a Fed rate cut in March. Swaps pricing shows the chances of such a cut slipped below 60% on Wednesday for the first time since the middle of December. That is down from 80% on Friday.
The decline followed comments from Fed officials this week pushing back against market expectations for imminent cuts and stronger-than-expected retail sales data Wednesday. Bumper consumer spending helped propel the economy in recent weeks, the Fed said in its Beige Book survey.
Higher US yields supported the dollar. An index of the greenback touched a one-month high. The yen was steady early Thursday after weakening to 148 per dollar Wednesday, a six-week low.
The selling was also felt in Europe with the region-wide Euro Stoxx 50 slipping 1% on Wednesday, as investors digested comments from European Central Bank President that it will likely trim rates in the middle of the year. A slide in UK bonds after data showed inflation picked up also prompted traders to pare bets on Bank of England easing.
In Asia, data set for release includes Australian jobs figures, Japan core machine orders and New Zealand home sales. Taiwan Semiconductor Manufacturing Co., the chip giant, will release earnings.
Samsung Electronics Co. is targeting double-digit growth for its latest flagship smartphone series released Wednesday that will include new artificial intelligence features.
Elsewhere in corporate news, operators of Boeing Co.’s 737 Max 9 have completed inspections on an initial batch of 40 planes, a key step to eventually end the grounding of the aircraft. Meanwhile, Apple Inc. has to stop selling its Series 9 and Ultra 2 smartwatches with a blood oxygen feature in the US, after suffering another legal setback in a patent dispute.
Gold fell 1% Wednesday to just above $2,000 per ounce. Oil prices were range-bound with West Texas Intermediate rising 0.2% to $72.56 Wednesday.
Key events this week:
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US housing starts, initial jobless claims, Thursday
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Republican presidential primary debate in New Hampshire, Thursday
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ECB President Christine Lagarde participates in Davos panel discussion, Thursday
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ECB publishes account of December policy meeting, Thursday
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Atlanta Fed President Raphael Bostic speaks, Thursday
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Canada retail sales, Friday
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Japan CPI, tertiary index, Friday
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US existing home sales, University of Michigan consumer sentiment, Friday
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ECB President Christine Lagarde and IMF Managing Director Kristalina Georgieva speak in Davos, Friday
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San Francisco Fed President Mary Daly speaks, Friday
Stocks
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro was little changed at $1.0881
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The Japanese yen was little changed at 148.09 per dollar
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The offshore yuan was little changed at 7.2232 per dollar
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The Australian dollar was little changed at $0.6554
Cryptocurrencies
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Bitcoin fell 0.1% to $42,587.27
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Ether fell 0.2% to $2,520.27
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
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