Japan's Nikkei 225 extends selloff to 3rd straight day amid rising yields, Iran-Israel tension

Markets have recalibrated their rate cut expectations to September from June.

Japan's Nikkei 225 index extended losses to the third straight day on April 17 as tension in the Middle-East continued to weigh on the risk sentiment and investors booked profits ahead of the corporate earnings season. The broader Topix index also slipped into the negative territory in the morning.

Though Nikkei 225 started trading in the green after good exports data for March, caution gripped the benchmark as investors await Japan's earnings season to kick off next week.

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Losses spread to other Asian markets as well, with South Korea's Kospi falling 0.5 percent and mainland China CSI 300 down 0.1 percent.

However, Australia's S&P 200 index and Hong Kong's Hang Seng's index bucked weak trend in Asian markets and edged up marginally on April 17.

Overnight, the US markets gave little support to the overall trend as two-year treasury yields topped the 5 percent level, while the 10-year note hovered on 4.6 percent. The strength in yields continued after Federal Reserve Chairman Jerome Powell said inflation is yet to ease back to 2 percent goal.

Powell reiterated his statement that he saw "lack of progress" in inflation trends and that it may take longer than expected to achieve that confidence of easing monetary policy.

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Both S&P 500 and tech-heavy Nasdaq Composite indices fell up to 0.2 percent, while Dow Jones broke a six-day losing streak to settle 0.1 percent higher on April 16.

Having said that, the markets have recalibrated their rate cut expectations to September from June, according to CME-FedWatch tool. The probability of a September rate cut has increased to 46.2 percent from 45.2 percent a week ago. On the other hand, rate cut prospects in June have diminished to 15 percent from 16.1 percent a week ago. That said, a higher-for-longer Fed guidance is also not likely to surprise market participants.

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