Asian stocks declined with U.S. and European futures Thursday after Federal Reserve officials sped up their expected pace of policy tightening. The dollar and Treasury yields held overnight gains.
An MSCI gauge of Asian shares was on track for its biggest slide in a month. Japanese stocks underperformed, while Hong Kong and Chinese equities fluctuated. S&P 500 futures slipped after the benchmark closed off its lows as Fed Chair Jerome Powell downplayed the risk of an immediate rate increase. Policy makers disclosed in their June communications that they are starting a discussion about scaling back bond purchases, and two hikes are likely by the end of 2023.
Bond yields jumped in Australia and New Zealand, following the move in Treasury yields as the market repriced the timing of rate increases. Asian currencies tumbled, led by the South Korean won, after a dollar index had its biggest jump in a year. Yield premiums on investment-grade dollar bonds from borrowers in Asia ex-Japan widened.
Elsewhere, the Australian dollar pared its overnight losses after employment data beat estimates. Crude oil declined as the strengthening dollar reduced the appeal of commodities priced in the currency.
Investors were surprised by what some saw as a hawkish pivot by the Fed, which gave its first signal of plans to dial back the stimulus that has spurred the recovery from the pandemic. Powell’s confirmation that officials are starting to discuss trimming bond purchases came alongside the Fed’s latest projections, which included upward revisions to its outlook for inflation and interest rates.
Still, Powell stressed that rate increases aren’t imminent, and asset purchases will continue at the current $120 billion monthly pace until “substantial further progress” had been made on employment and inflation.
“The move in the dot plot raised concerns that maybe even though the Fed now believes they are not going to be raising rates anytime soon, that the timetable might be tightened up, might be moved forward,” Michelle Girard, Natwest Markets co-head of global economics and chief U.S. economist, said on Bloomberg Television. “We’ve gotten to a point that has everyone feeling slightly less comfortable in assuming that the Fed is going to be able to be as patient for as long as they would like.”
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Here are some key events to watch this week:
- U.S. Treasury Secretary Janet Yellen testifies before a House panel Thursday on the federal budget
- Rate decisions come from Switzerland and Norway on Thursday
- The Bank of Japan’s monetary policy decision is on Friday
These are some of the main moves in markets:
- S&P 500 futures fell 0.3% as of 7 a.m. in London. The S&P 500 fell 0.5%
- Nasdaq 100 futures lost 0.4%. The Nasdaq 100 fell 0.3%
- Topix index fell 0.6%
- Australia’s S&P/ASX 200 Index lost 0.4%
- Kospi index retreated 0.4%
- Hang Seng Index was little changed
- Shanghai Composite Index was little changed
- Euro Stoxx 50 futures fell 0.4%
- The yen traded at 110.66 per dollar
- The offshore yuan was at 6.4258 per dollar, up 0.2%
- The Bloomberg Dollar Spot Index was flat
- The euro traded at $1.2003
- The yield on 10-year Treasuries held at 1.57%
- Australia’s 10-year bond yield climbed 11 basis points to 1.66%
- West Texas Intermediate crude slid 0.3% to $71.94 a barrel
- Gold rose 0.3% to $1,817.55
— With assistance by Katherine Greifeld, Kamaron Leach, and Emily Barrett