Asian shares stumble as U.S. yields, dollar hold firm

Hong Kong, Sept. 29 (BNA): Asian stocks fell on Wednesday, tracking declines on Wall Street as investors worried about economic uncertainty that has sent benchmark US bond yields higher and pushed the dollar to a more than 10-month high.

Doubts about the global recovery have resurfaced as the US Federal Reserve prepares to scale back gradual stimulus and the Biden administration is stuck in contentious debt ceiling negotiations that could lead to a government shutdown, Reuters reported.

The benchmark 10-year rates gained 25 basis points in five sessions and last settled at 1.5513%, after hitting their highest levels since mid-June the day before, while the dollar index was at 93.752.

“We think (the 10-year Treasury yields) are likely to be in the 1.5% to 1.75% range, so they clearly still have room to go,” said Daniel Lamm, chief cross-asset strategist at Standard Chartered.

Lam said the rise in yields was driven by the fact that the US would certainly begin to reduce its massive asset purchases by the end of this year, and that this should lead to a shift from growth stocks to value names.

He said that this change is unlikely to significantly reflect recent inflows from Asian stocks into US stocks as policy moves are generally less supportive in Asia than in the US and Europe at the moment, so “opportunities in Asia will be tactical and short-term.”

Higher yields and a strong dollar hurt Asian stocks in early trade. MSCI’s broadest index of Asia Pacific shares outside Japan fell 1.43% with Australia down 1.5%, and South Korea shedding 2.06%.

Hong Kong’s benchmark index fell 1.2% and Chinese blue chips fell 1.1%.

Japan’s Nikkei lost 2.35% on the mood as the country’s ruling party votes to choose a new leader who is almost certain to become the next prime minister ahead of the general elections due in weeks.

Overnight, all three major US stock indexes fell 2% or more, as interest rate-sensitive tech stocks and their neighbors were hit by higher yields.

It was the S&P 500’s biggest one-day percentage drop since May, and the Nasdaq’s biggest since March, but US stock futures, the S&P 500 e-minis, were up 0.25% in Asian hours.

Also on the minds of traders is China’s cash-strapped Evergrande Group, whose shares rose as much as 12% after it said it plans to sell a 9.99 billion yuan ($1.5 billion) stake it holds in Shengjing Bank Co Ltd.

Evergrande is set to pay $47.5 million in bond interest on its 9.5% dollar bonds in March 2024, after it missed a similar payment last week, but said in the exchange’s filing that the proceeds from the sale should be used to settle its financial obligations to Shengjing Bank.

In the currency markets, a strong dollar means the yen is trading near its lowest levels since early 2020, while the euro hit a one-month low overnight.

Oil prices fell after touching their highest level in three years the day before. Brent crude fell 0.83 percent to $78.25 a barrel, and US crude fell 1.09 percent to $74.47 a barrel.

Gold surged higher with spot at $1735.6 an ounce, up 0.1% from a seven-week low hit the previous day as higher yields hurt demand for non-interest assets.

HF