Stocks, Treasuries Slide as Rates Worries Mount: Markets Wrap

(Bloomberg) — Stocks and equity futures fell, while Treasuries slid as the prospect of higher interest rates continued to mount on the back of the Federal Reserve’s battle against inflation.

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An Asia equity benchmark was headed for its second straight weekly fall, with some of the biggest losses posted by Chinese tech shares. Futures on US and Europe equity contracts were also in the red. The picture was different in Japan, with stock gains supported by positive earnings from chipmakers.

Treasury yields continued their climbs across the curve after investors pushed yields on the two-year Treasury above the 10-year’s by the most since the early 1980s, a sign of flagging confidence in the economy’s ability to withstand additional Fed hikes.

Next week’s inflation update from the US offers a relevant potential inflection point in the Treasury yield curve, according to Benjamin Jeffery and Ian Lyngen, strategists at BMO Capital Markets Corp. “Our expectations are that the market takes away sufficient angst regarding the prevailing inflation trend to press the inversion trade even further,” they wrote in a note.

Market pricing for US rates to peak in July inched higher as investors digested the fresh data and the drumbeat of central bankers signposting further tightening ahead. Fed Bank of Richmond President Thomas Barkin said it’s important to continue hiking to rein in inflation. His comments echoed sentiment from four Fed officials who spoke Wednesday.

Read: Fed-Funds Call at 8% Keeps One Strategist Ahead of the 6% Pack

Maybank Group Wealth Management is positive on the long-end of the Treasuries curve despite the inflation-induced volatility. “But at the same time the downside risk to growth, the deteriorating growth outlook will also put a damp on how much the 10-year can increase,” Eddy Loh, chief investment officer, said on Bloomberg Television. “While there could be some near-term volatility for 10-year Treasury yield, it would likely trend lower during the course of the year and remain sustainably below 3.5%.”

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The dollar surged against all Group-of-10 currencies, while the offshore yuan was range-bound. Chinese inflation data showed consumer prices rose 2.1% in January from a year earlier, in line with market forecasts.

Australian bond yields fell slightly after the central bank released its quarterly statement, in which it boosted its forecast for core inflation this year, underscoring the need for even higher borrowing costs.

Japan’s government is planning to announce a new Bank of Japan governor on Feb. 14, a move that will be closely watched by markets. The yen has been fluctuating since Nikkei reported early this week that BOJ Deputy Governor Masayoshi Amamiya might succeed Haruhiko Kuroda at the helm of the central bank.

Meanwhile, Lyft Inc. shares tumbled about 30% in after-hours trading following an earnings outlook that significantly missed analysts’ estimates as it prepares to sacrifice profits in a bid to attract riders with lower prices. In the regular session, Tesla Inc. extended a rally that has pushed the electric-vehicle maker’s stock price up about two-thirds this year. Alphabet Inc. shares fell further on concerns about its artificial intelligence chat bot unveiled earlier this month.

Bitcoin steadied a Thursday decline that pushed the cryptocurrency down 4.8% Thursday, the biggest one-day drop since November, amid speculation about a regulatory crackdown.

Elsewhere, oil trimmed a weekly gain as investors weighed the threat of a global economic slowdown against a bullish outlook for Chinese demand following the end of Covid Zero. Gold held near the lowest close in more than a month.

Key events:

• US University of Michigan consumer sentiment, Friday

• Fed’s Christopher Waller and Patrick Harker speak, Friday

Here are some of the main market moves as of 2:48 p.m. Tokyo time:

Stocks

• S&P 500 futures fell 0.1%. The S&P 500 fell 0.9%

• Nasdaq 100 futures fell 0.2%. The Nasdaq 100 fell 0.9%

• Japan’s Topix index was little changed

• South Korea’s Kospi index fell 0.8%

• Hong Kong’s Hang Seng Index fell 2%

• China’s Shanghai Composite Index fell 0.6%

• Australia’s S&P/ASX 200 Index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro fell 0.1% to $1.0724

• The Japanese yen fell 0.1% to 131.73 per dollar

• The offshore yuan fell 0.3% to 6.8106 per dollar

Cryptocurrencies

• Bitcoin fell 0.2% to $21,816.57

• Ether rose 0.2% to $1,544.52

Bonds

• The yield on 10-year Treasuries advanced one basis point to 3.67%

• Japan’s 10-year yield was unchanged at 0.49%

• Australia’s 10-year yield advanced four basis points to 3.71%

Commodities

• West Texas Intermediate crude fell 0.7% to $77.52 a barrel

• Spot gold fell 0.3% to $1,857 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson.

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