Singapore Oct 27 (BNA): Tech stocks fell and short-term Treasury yields jumped on Wednesday as investors expect inflation to raise interest rates, with a higher-than-expected reading in Australia the latest sign of price pressure on central bankers. Represent.
The Australian dollar also rose about 0.4% and Australian short-term government bonds sold heavily after the release of data, which showed Australia’s core inflation reached a six-year high, Reuters reported.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5% – although still on track for its best month of the year – led by technology shares in Hong Kong. Japan’s Nikkei index fell 0.6%.
Strong earnings earlier pushed Wall Street indexes to new highs and US stock futures settled in early trading.
“Two things are worrying investors, and inflation news is everywhere,” said Khun Goh, head of Asia research at ANZ Bank in Singapore.
“This is where I started to focus on expectations of when the Fed might start raising rates. The tape announcement next week is pretty much a done deal — markets are past tapering and focused on tightening.”
Two-year US Treasury yields jumped nearly 5 basis points to 0.4970%, a 19-month high. The Federal Reserve meets next Tuesday and Wednesday, with crude oil and soft commodities prices hovering near multi-year peaks.
The Federal Reserve confirmed that it will soon begin reducing its asset purchases, although it said it should not indicate that a rate hike is imminent. However, Fed fund futures are priced in the second half of next year.
“We updated the Fed’s call to show an increase in the fourth quarter of 2022 and four increases in 2023,” analysts at NatWest said in a note.
“It has been over-inflation,” they said. “There is (only) a lot the Fed can handle before they respond… It feels inevitable that that conversation is being brought up more and more as we head into the next year.”
Ahead of the Fed meeting, the European Central Bank, the Bank of Japan and the Bank of Canada set policy this week. No changes expected from Tokyo, but traders expect the European Central Bank to back down on market inflation expectations and are looking for hawkish evidence from the Bank of Canada as prices put pressure on prices.
An unexpected rise in consumer prices in Australia, which showed broad gains from rents to gasoline prices, has emboldened bond traders who are aggressively betting that the Reserve Bank of Australia will back away from its cautious guidance.
The reading comes after an inflation reading of more than a decade in New Zealand last week damaged bond markets and dragged out interest rate hike expectations to mid-2022.
The Australian government bond yield for April 2023, which the Reserve Bank of Australia targeted at 0.1% as a sign that the cash rate will be at record lows for years, rose to 0.237% in direct defiance of the bank’s intentions.
Three-year Australian government bond futures, which are traded more heavily than cash, fell nearly 19 basis points to their lowest level since mid-2019.
The Australian dollar rose to $0.7536, although the broader currency markets were quiet as traders look to central bank meetings over the next week or so for guidance. The Canadian dollar hovered just below a four-month high last week.
Oil prices retreated from overnight highs, with Brent crude futures down 0.75% to $85.75 a barrel, and US crude dropping by the same margin to $84.02 a barrel.
Gold settled at $1,788 an ounce and Bitcoin settled at $60,000 after falling late on Tuesday.
HF