US collapse pushes Asia to open up as bond yields climb: Markets soar

Stocks in Asia look set for a bearish open on Tuesday after concerns over monetary tightening by the Federal Reserve dragged U.S. stocks to their worst fall in two months while boosting bond yields and the dollar.

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(Bloomberg) – Equities in Asia look set for a bearish open on Tuesday after concerns over monetary tightening from the Federal Reserve dragged U.S. stocks to their worst drop in two months while boosting bond yields and the dollar.

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Futures contracts slid for Japan and Australia, but those for Hong Kong were flat after a gauge of U.S.-listed Chinese stocks held off falls in the S&P 500 and Nasdaq 100. the latter two indexes stabilized, making modest gains.

China has cut borrowing costs and is planning special loans for developers worth up to 200 billion yuan ($29.3 billion). These measures to deal with a real estate crisis can be a support for sentiment on the mainland and in Hong Kong.

The Fed’s drag on the US economy to ensure high inflation continues to cool remains the key driver in broader global markets. Traders brace for hawkish talk at the central bank’s Jackson Hole retreat later this week.

Shorter maturities led to a selloff in Treasuries on Monday against this backdrop, pushing the 10-year yield above 3%. Australian and New Zealand bonds fell in their wake. The dollar was firm and the euro near a two-decade low.

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Doubts are mounting over bets that the Fed will temper monetary policy tightening, expectations that have helped lift investor sentiment. For example, hedge funds in a key segment of the derivatives market made record bets that the US central bank would stick to a hawkish scenario.

The “incentives from the Fed are to communicate that rate hikes will remain the norm for the rest of the year” even if the pace will eventually slow, Benjamin Jeffery and Ian Lyngen, strategists at BMO Capital Markets, wrote in a note. .

Hedge funds collectively placed a big short sale on futures contracts referencing the official successor to the London Interbank Offered Rate, known as the Overnight Collateral Funding Rate. This position should benefit if Fed Chairman Jerome Powell effectively rules out a dovish pivot in Jackson Hole.

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Tightrope

Powell and his colleagues at the Fed are walking a tightrope, trying to contain price pressures while avoiding a US recession. At the same time, growth risks are evident around the world, ranging from the European energy crisis to Chinese real estate and Covid issues.

With total US debt over $30 trillion, a 1% increase in rates results in a “huge” increase of more than $300 billion in interest payments, said Tracy Chen, manager of portfolio at Brandywine Global Investment Management, on Bloomberg Television.

“How high can the Fed technically raise its interest rate?” Is a federal funds rate of 4% to 5% realistic? she said, underlying the sobering challenge ahead.

Elsewhere, oil rose above $90 after Saudi Oil Minister Prince Abdulaziz bin Salman warned that the disconnect between the futures market and fundamentals could force OPEC and its allies to act. Gold and Bitcoin have suffered recent losses.

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What to watch this week:

  • US new home sales, S&P Global PMI, Tuesday
  • Minneapolis Fed President Neel Kashkari speaks during a question-and-answer session on Tuesday
  • U.S. durable goods, MBA mortgage applications, pending home sales, Wednesday
  • US GDP, first jobless claims, Thursday
  • The Kansas City Fed is hosting its annual economic policy symposium in Jackson Hole, Wyoming on Thursday
  • ECB July Minutes, Thursday
  • Fed Chairman Powell speaks in Jackson Hole on Friday
  • US Personal Income, PCE Deflator, University of Michigan Consumer Sentiment, Friday

Some of the major movements in the markets:

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  • S&P 500 futures rose 0.2% at 7:57 a.m. in Tokyo. The S&P 500 fell 2.1%
  • Nasdaq 100 futures added 0.2%. The Nasdaq 100 fell 2.7%
  • Nikkei 225 futures fell 0.9%
  • Australian S&P/ASX 200 index futures lost 0.6%
  • Hang Seng Index Futures Little Changed

Currencies

  • The Bloomberg Dollar Spot Index remained stable
  • The euro was at $0.9944
  • The Japanese yen was at 137.45 to the dollar
  • The offshore yuan was at 6.8680 to the dollar

Obligations

  • The yield on 10-year Treasury bills rose four basis points to 3.01%
  • Australia’s 10-year yield added seven basis points to 3.59%

Goods

  • West Texas Intermediate crude was at $90.70 a barrel, up 0.4%
  • Gold was at $1,735.72 an ounce

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