Asian stocks fall, yields rise as markets prepare for strong Fed

Visitors walk in front of Japan’s Nikkei stock price board inside a conference hall in Tokyo, Japan, September 14, 2022. REUTERS/Issei Kato/File Photo

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TOKYO (Reuters) – Stocks sank in Asia and bond yields rose on Wednesday, as investors prepared to raise interest rates again from the US Federal Reserve later in the day.

Japan’s Nikkei (.N225) fell 1.26% and touched a two-week low. Australia’s stock index (.AXJO) is down 1.35% and South Korea’s Kospi (.KS11) is down 0.9%.

Chinese blue-chips (.CSI300) fell 0.82%, while Hong Kong’s Hang Seng (.HSI) lost 1.26%.

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MSCI’s broadest index of Asia Pacific shares (.MIAP00000PUS) lost 1%.

It comes after an overnight Wall Street sell-off caused a 1.13% drop from the S&P 500 (.SPX), although futures pointed to a slightly higher open on Wednesday.

The Federal Reserve made headlines in the week that more than a dozen central banks announced policy decisions, including the Bank of Japan and the Bank of England on Thursday.

Sweden’s Riksbank surprised markets overnight by raising a full percentage point, and warned of more to come over the next six months. Read more

Despite this, bets on Fed tightening remained stable.

Markets put an 81% chance of another 75 basis point increase, and see a 19% chance of a full percentage point rise.

Global yields rose on expectations of further tightening.

The US two-year Treasury yield reached an almost 15-year high of 3.992% on Tuesday and remained high at 3.9516% in Tokyo trading, while the 10-year Treasury yield touched its highest level in more than a decade.

It hit 3.604% for the first time since April 2011, and was most recently at 3.5473%.

Australia’s benchmark 10-year yield surged to a nearly three-month high of 3.789%, and South Korea’s equivalent yield hit the highest since April 2012.

Taylor Nugent, a markets expert at National Australia Bank in Sydney, wrote in a note to clients that markets “look well positioned for a 75 basis point hike along with a hawkish update” from the Fed.

“Post-meeting comment and updated points will be key,” Nugent said, adding that NAB was looking for a policy rate “equivalent to 4%” at the end of this year with no rate cuts expected until 2024.

The US dollar index, which measures the currency against six major peers, rose slightly to 110.22, retreating towards a 20-year high of 110.79.

The dollar was little changed at 143.64 yen, having tried twice this month, a level last seen 24 years ago.

This week, the Bank of Japan is poised to cement its position as the lone pigeon among the central banks of advanced economies by sticking to its highly accretive policy that holds the 10-year Japanese government bond yield near 0%.

The bank offered to buy 250 billion yen of bonds in an unscheduled operation on Wednesday to keep yields in check.

Sterling put near $1.1372, nearing a 37-year low of $1.1351 on Friday.

Markets are divided over whether the BoE will opt for a 50 or 75 basis point increase on Thursday.

Meanwhile, crude oil extended its decline amid concerns that severe tightening by the Federal Reserve and other central banks would hamper growth and curb demand.

Brent crude futures fell 26 cents to $90.36 a barrel, after falling $1.38 the previous day.

US West Texas Intermediate crude was $83.74 a barrel, down 20 cents. The October delivery contract ended $1.28 lower on Tuesday while the more active November contract lost $1.42.

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Kevin Buckland reports. Editing by Ana Nicholas da Costa

Our Standards: Thomson Reuters Trust Principles.

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