(Bloomberg) — Shares in Asia declined while Treasury yields and the dollar rose in a sign investors are yet to fully recalibrate interest rate expectations.
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Equity benchmarks for Japan, Australia and Hong Kong fell while a decline in South Korean equities dragged the Kospi Index to a six-month low. Futures contracts for the S&P 500 and Nasdaq 100 also dropped, all but erasing Monday gains for the underlying benchmarks. Mainland China benchmarks, meanwhile, opened flat.
A gauge of Chinese property developers fell after slumping by the most in nine months on Monday amid fresh signs of turmoil for the sector. China Evergrande Group missed a debt payment and former executives were detained. That added to fears about the sector’s debt pile and compounded concern that global growth will stall as the economic engine of the world’s second biggest economy sputters.
Treasury yields climbed in early Asian trading after the 10-year rate added 11 basis points to set a fresh 16-year high on Monday to trade above 4.54%, a level last seen in 2007. The momentum flowed into Asia, with Australian and New Zealand yields also climbing.
“Rates will stay high,” BlackRock Investment Institute analysts including Wei Li, global chief investment strategist, wrote in a note. Quantitative tightening and Treasury issuance in the US could spur yields higher in the near term. “Rising long-term bond yields show markets are adjusting to risks in the new regime of greater macro and market volatility.”
Rising yields supported the greenback. The Bloomberg dollar index held its gains from Monday, when it closed at the highest level since December. The yen steadied after weakening to a fresh-year low after Bank of Japan officials doubled down on the message that stimulus is still needed.
A warning that a US government shutdown would reflect poorly on America’s credit rating from Moody’s Investors Service did little to shift market sentiment Monday. Concerns about a shutdown may intensify later this week as Oct. 1 draws near.
Crude prices were flat after a small decline Monday. Traders are increasingly concerned that rising oil prices risk fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon. Hedge funds boosted exposure to oil on bets tightening supplies will stoke demand.
Fed Bank of Chicago head Austan Goolsbee said it’s still possible for the US to avoid a recession. “I’ve been calling that the golden path and I think it’s possible, but there are a lot of risks and the path is long and winding,” he said in a CNBC interview.
Two Fed officials last week said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2% target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required.
“There are several reasons to believe that the full impact from tighter monetary policy is still yet to take effect,” said Henry Allen, a strategist with Deutsche Bank. “As such, it will be some months before we can sound the all clear for the economy, not least given longer-term interest rates are still reaching new highs even now.”
Key events this week:
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US new home sales, Conference Board consumer confidence, Tuesday
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ECB’s Philip Lane speaks on monetary policy, Tuesday
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China industrial profits, Wednesday
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US durable goods, Wednesday
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Eurozone economic confidence, consumer confidence, Thursday
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US initial jobless claims, GDP, Thursday
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Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
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Eurozone CPI, Friday
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Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
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US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
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ECB President Christine Lagarde speaks, Friday
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New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.4% as of 10:49 a.m. Tokyo time. The S&P 500 rose 0.4%
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Nasdaq 100 futures fell 0.5%. The Nasdaq 100 rose 0.5%
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Japan’s Topix fell 0.3%
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Australia’s S&P/ASX 200 fell 0.4%
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Hong Kong’s Hang Seng fell 0.8%
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The Shanghai Composite was little changed
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Euro Stoxx 50 futures fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0586
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The Japanese yen was little changed at 148.92 per dollar
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The offshore yuan was little changed at 7.3088 per dollar
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The Australian dollar was little changed at $0.6426
Cryptocurrencies
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Bitcoin fell 0.1% to $26,261.75
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Ether rose 0.1% to $1,588.8
Bonds
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The yield on 10-year Treasuries advanced two basis points to 4.56%
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Japan’s 10-year yield advanced 1.5 basis points to 0.745%
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Australia’s 10-year yield advanced 11 basis points to 4.42%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott.
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