Asian Stocks Set to Drop as US Shares and Treasuries Extend Selloff
Asian stocks are poised to drop after US shares and Treasuries continued their downward trend, fueled by strong economic data and hawkish comments from Federal Reserve officials. This has heightened speculation that interest rates will remain higher for longer than previously anticipated.
Equity futures in Australia, Japan, and Hong Kong all declined, while contracts in South Korea and mainland China saw slight gains. US equity futures were relatively unchanged after the S&P 500 fell for the fifth consecutive day, with technology stocks leading the declines.
Treasuries also saw a sell-off across the US curve, with two-year yields nearing the 5% mark once again. The dollar strengthened, while the yen fluctuated amid concerns over currency movements. The market is now pricing in an initial quarter-point rate cut from the Federal Reserve in November.
Global markets have been turbulent this week as traders adjusted their expectations for Fed easing following hawkish comments from officials and positive US economic data. The MSCI All Country World Index is on track for its biggest weekly decline since October, and the VIX volatility index reached its highest level in over five months.
The main concern for the market currently is inflation, which is picking up pace and casting doubt on the possibility of any rate cuts in 2024. Investors are being advised to prepare for a higher-for-longer scenario in terms of both inflation and interest rates.
Traders in Asia will be closely monitoring Japanese inflation data for clues on potential policy tightening by the Bank of Japan. Economists are increasingly expecting the BOJ to raise rates later this year, with some even suggesting a move as early as July.
Elsewhere, oil prices edged lower while gold held onto gains amid political risks and demand from central banks and Chinese consumers. Israel also received its first-ever sovereign downgrade from S&P Global Ratings due to heightened geopolitical risks in the region.
Key events to watch this week include Japan’s CPI data, speeches from central bank officials, and economic indicators. Overall, the market remains uncertain as investors navigate changing expectations for monetary policy and economic conditions.
