Stocks in Asia followed US peers lower after a selloff in Treasuries on bets the Federal Reserve will delay cutting interest rates due to inflation risks.
Equities fell in Sydney, Hong Kong and Tokyo, sending a regional gauge lower. A drop in Big Tech weighed on US trading, with Nvidia Corp. sinking more than 6% as a product presentation left investors wanting more. US contracts were steady after the S&P 500 fell more than 1% following a report on US service providers that showed a price gauge at the highest since early 2023.
“We must ask whether there is reason to buy risk today, and with the overnight developments, I‘d argue that there isn’t,” said Chris Weston, head of research at Pepperstone Group Ltd.
Regional economic uncertainties continued to weigh, with Chinese markets indicating growing alarm over a deflationary spiral. That comes as yield premiums are near their lowest since the global financial crisis, testing investor appetite for a spate of deals that’s flooding global debt markets.
Investors in China’s $11 trillion government bond market have never been so pessimistic. Yields on 10-year Chinese sovereign bonds have tumbled in recent weeks to all-time lows, creating an unprecedented 300-basis-point gap with US peers, despite a slew of economic stimulus measures announced by President Xi Jinping’s government.
China maintained its tight grip on the yuan with its daily reference rate. The People’s Bank of China set the so-called fixing at 7.1887 per dollar, 1,528 pips stronger than the average estimate in a Bloomberg survey of traders and analysts. The widening of the gap, which hit the largest since April on Wednesday, is a show of policymakers’ intention to avoid sharp yuan declines.
Treasuries were little changed after falling across the curve in the previous session. A $39 billion sale of 10-year bonds drew the highest yield since 2007. The 10-year Treasury yield remained around its highest levels since April.
“With the trough in yields more than 100 basis points lower and more than three months ago, we think this should also help yields find greater stability in the coming weeks,” JPMorgan Chase & Co. strategists Jay Barry, Jason Hunter and Phoebe White wrote in a note.
Traders, who as recently as late September were fully pricing in another Fed rate cut by March, scrapped wagers that there will be one until the second half of the year. Separate data Tuesday showed job openings rose to a six-month high in November, boosted by a jump in business services — while other industries showed more mixed demand for workers.
With Treasury yields climbing again, Bank of America Corp. strategists predict traders could return to perceiving strong economic data as negative, as it signals the Fed will need to keep rates elevated for longer. Options indicate potential for a spike in US 10-year yields to 5% — a level not seen since October 2023.
Samsung Electronics Co.’s earnings missed estimates due to a costly effort to claw back market share in the pivotal AI chip and smartphone arenas.
Hong Kong banks, including HSBC Holdings Plc and Standard Chartered Plc, are hoarding cash and liquidity despite calls by the government to help out struggling small businesses with funding to reignite the city’s ailing economy. They held an aggregate liquidity coverage ratio of more than 180% in the second quarter, the highest ever and almost double the 100% requirement.
Oil rose a second day on Wednesday after an industry report pointed to another drop in US inventories, and Bitcoin traded below $100,000.
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