(Bloomberg) — Stocks in Asia dropped after renewed concerns about higher-for-longer US interest rates fueled a selloff on Wall Street, with all eyes on the Federal Reserve’s policy decision due later Wednesday.
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Japan’s Nikkei 225 index slid after recording its worst month since December 2022. Australian shares also declined, with many markets in the region closed for a public holiday. The S&P 500 fell the most since January after a jump in a key gauge of US labor costs reinforced bets that officials will keep rates at a two-decade high for some time. US stock futures slipped in early Asian trade.
“Public holidays in China and parts of Europe will thin markets slightly, and there’s likely to be a level of risk aversion in Asian trade today going into the FOMC decision,” said Kyle Rodda, a senior market analyst at Capital.com. “If the Fed asserts a high probability of no cuts this year, or even the open possibility of another hike, that could deepen the sell-off in stocks.”
The yen was steady with an index of the dollar stabilizing after gaining the most in more than two weeks on Tuesday. Treasury two-year yields edged slightly lower after reaching the highest level since November, while Australia’s 10-year yield jumped six basis points early Wednesday.
“Monday’s BoJ intervention was likely the first shot in what will be a titanic battle between the macro forces supporting USD/JPY’s unrelenting rise and the resolve of Japanese currency officials,” said Tony Sycamore, market analyst at IG Australia. “This will likely see USD/JPY locked in a battleground between 155 and 160 in the coming weeks.”
In the corporate world, Japan’s Lasertec shares climbed as much as 14%, after the semiconductor equipment maker reported strong order growth and consensus-beating third-quarter earnings.
In other markets, gold edged higher after extending its decline from a record high reached in mid-April. Oil continued to slip as the potential for a cease-fire in the Middle East eased tensions.
The last time Fed Chair Jerome Powell spoke, he pointed to the lack of further progress in bringing inflation down and to enduring strength in the labor market. The latest inflation signals — in tandem with expectations for a robust employment report on Friday — aren’t likely to lead him to change his tune.
A plunge in consumer confidence further weighed heavily on US equities — which suffered their worst month since September. In late hours, Amazon.com Inc. reported strong sales for its cloud unit amid rising artificial-intelligence demand. Advanced Micro Devices Inc., the second-biggest maker of computer processors, gave a lukewarm revenue forecast for the current period.
A survey conducted by 22V Research shows that only 16% of investors polled expect a “risk-on” reaction to Wednesday’s Fed decision, 44% said “risk-off,” and 40% “negligible/mixed.” The tally also revealed that two-thirds of respondents still expect a rate cut in 2024.
Sticky US inflation this year isn’t necessarily bad news for the stock rally as higher yields are a reflection of strong economic growth, according to HSBC strategists led by Max Kettner.
“If the Fed’s cuts turn out to be more like the recalibration in the mid-1990s and 2019, it may not necessarily be bad news for risk assets,” they said.
Key events this week:
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Holiday across much of Asia and Europe, Wednesday
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Treasury’s quarterly refunding announcement, Wednesday
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US ADP employment change, JOLTS job openings, ISM Manufacturing, Wednesday
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Federal Reserve rate decision, Wednesday
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Eurozone S&P Global Manufacturing PMI, Thursday
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US factory orders, initial jobless claims, trade, Thursday
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Apple earnings, Thursday
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Eurozone unemployment, Friday
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US unemployment, nonfarm payrolls, ISM Services, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.2% as of 10:38 a.m. Tokyo time
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Hang Seng futures fell 1.1%
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Nikkei 225 futures (OSE) fell 0.9%
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Japan’s Topix fell 0.7%
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Australia’s S&P/ASX 200 fell 1.1%
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Nasdaq 100 futures fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0660
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The Japanese yen was little changed at 157.77 per dollar
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The offshore yuan was little changed at 7.2516 per dollar
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The Australian dollar was little changed at $0.6467
Cryptocurrencies
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Bitcoin rose 0.7% to $60,290.88
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Ether rose 1.6% to $3,009.31
Bonds
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The yield on 10-year Treasuries was little changed at 4.67%
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Japan’s 10-year yield advanced two basis points to 0.890%
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Australia’s 10-year yield advanced six basis points to 4.48%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rob Verdonck and Rita Nazareth.
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