Hong Kong-listed Chinese technology companies fell more than 3%, with notable weakness also in South Korean and Australian shares. US futures fluctuated after a sharp slide on Wall Street on Tuesday, when the S&P 500 dropped the most in two weeks.
A measure of greenback strength held near its highest level this year, putting particular pressure on emerging markets. The yen extended its decline, the yuan traded just below the key level of 7 versus the dollar and the currencies of Australia and New Zealand held most of their large losses from the previous session.
Powell signalled during Senate testimony that officials were ready to speed up the pace of tightening and take rates to higher levels if inflation remains hot. That’s sent short-end yields skyrocketing and prompted a shift higher in rate-hike bets.
The two-year Treasury yield rose further above 5% on Wednesday and was at the highest level since mid 2007. The rate has now surpassed its 10-year equivalent by a full percentage point for the first time since 1981. This is playing out in a deeply inverted yield curve – a potential harbinger of recession.
Australia’s 10-year bond yield rose four basis points to 3.72% while the more policy-sensitive three-year yield climbed six basis points to 3.43%. That’s even as Reserve Bank of Australia governor Philip Lowe said the point is drawing closer for a pause in the tightening cycle.
In the swaps market, traders boosted wagers for the Fed’s March 22 meeting, with an increase in bets for a half-point hike and a peak above 5.6% by September. The Fed raised its policy rate by a quarter point to a range of 4.5% to 4.75% in February.
“A 6% terminal rate is not out of the question now,” said Kellie Wood, deputy head of fixed income at Schroders in Australia. “Expect to see a broad-based selloff in Aussie and Asian markets today led by the short end but with US rates underperforming.”
US policymakers will have a chance to review the February jobs data and an update on consumer prices before they meet again. US payroll growth has topped estimates for 10 straight months in the longest streak in decades, a trend that, if extended, will boost pressure on the Fed to keep raising interest rates.
Elsewhere in markets, oil held a deep loss from Tuesday as the outlook for rate hikes raised concerns over a drag on demand. Gold was steady after falling to the lowest in a week in response to Powell. Shares of Asian gold and copper producers declined. BM/DM
Discussion about this post