(June 10): Stocks resumed their slide on Wednesday as technology shares remained under pressure and investors trimmed positions ahead of a key inflation reading in the US. Gold dropped.
MSCI’s gauge of Asia-Pacific equities fell 2.5%, heading for its fourth loss in five days, as investors rotated out of tech stocks. South Korea’s Kospi, a barometer of artificial intelligence (AI) investment, led regional losses, tumbling 6.3% as chipmakers retreated following a scorching advance that had propelled the benchmark to the top of global rankings this year.
Equity-index futures for the tech-heavy Nasdaq 100 dropped 0.8% after a volatile session on Wall Street on Tuesday. European shares were also primed for a drop at the open.
Gold dropped 2% to trade below US$4,200 ($5,405) an ounce on expectations that faster inflation will prompt the US Federal Reserve (Fed) to raise interest rates and weigh on non-interest-bearing assets. Bonds fell, with the Treasury 10-year yield rising two basis points to 4.54%. Oil pared Tuesday’s losses with Brent crude trading around US$92 a barrel as tensions flared following US attacks on Iran.
Volatility is rising across markets as traders grapple with a growing list of risks: stretched tech stock valuations, escalating Middle East tensions and mounting expectations that the Fed will need to raise rates to combat faster inflation. Eyes now turn to Wednesday’s US inflation report, which may provide the clearest signal yet on whether new Fed chair Kevin Warsh will keep rates higher for longer.
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“For now it seems like a good bet the Federal Open Market Committee (FOMC) next week will drop its easing bias with the risk that new Fed chair Warsh tilts hawkish,” said Rodrigo Catril, a strategist at National Australia Bank Ltd in Sydney. “Overall, US economic resilience is coming alongside rising headline inflation, the more this goes on, the higher the pressure on the Fed to do something about it.”
A series of monetary policy meetings are due over the next week, with the European Central Bank announcing its decision on Thursday, the Bank of Japan on June 16 and the Fed on the following day.
Bond traders are piling into positions targeting multiple Fed rate hikes in coming months, with some looking for a move as early as the September policy meeting.
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That is the theme in the options market linked to the Fed-sensitive secured overnight financing rate, where traders have been increasing wagers on rate increases ever since last Friday’s surprisingly strong US employment report, which sent the bond market tumbling.
Higher US interest rates tend to drain capital from emerging markets, strengthen the dollar and raise borrowing costs, creating a tougher backdrop for equities.
Economists surveyed by Bloomberg expect the annual consumer price index (CPI) to accelerate to 4.2% in May from 3.8% a month earlier. Core inflation, which excludes food and energy, is projected to edge up to 2.9% from 2.8%.
“An upside surprise in US CPI tonight would arguably put new Fed chair Warsh in a tough spot to argue that rate cuts are still on the table as we have observed that speeches from recent FOMC members have leaned more hawkish,” said Alex Loo, a senior Asia economist at TD Securities in Singapore.
Gold is one asset that’s getting a lot of attention.
The commodity is about a fifth below where it was trading before the Iran war broke out at the end of February. The metal’s recent decline through its 200-day moving average — a widely watched measure of long-term momentum — has triggered additional selling as it’s seen as an important level watched by institutional investors.
In other corners of the market, bitcoin dropped over 1% to around US$61,200. Japanese bond futures extended losses after a 30-year debt auction.
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Indonesian assets staged a rebound as officials stepped up efforts to assure foreign investors, with the rupiah rising the most in more than a year, while a sell-off in the bond market eased. Stocks extended a rally into a second day.
Higher interest rates and rich valuations have prompted investors to unwind some of their bets on tech stocks after a blistering rally that has taken equities to repeated records.
“Exuberance has been building for months, pushing stocks to one record after the next,” said John Cunnison, the chief investment officer of Baker Boyer Bank. “So anything perceived to be negative for equities — from higher inflation to even the potential for rate hikes — will knock the market off its footing after a historic run.”
Corporate news:
- Starbucks Corp is considering options for its Japanese business including a stake sale, according to people familiar with the matter, following the disposal of a majority interest in its China operations.
- SoftBank Group Corp’s talks with potential creditors to raise at least US$6 billion from a margin loan backed by its OpenAI stake have stalled, people familiar with the matter said.
Some of the main moves in markets:
Stocks
- S&P 500 futures were down 0.4% as of 1.54pm Tokyo time on Wednesday
- Japan’s Topix fell 1.4%
- Australia’s S&P/ASX 200 was little changed
- Hong Kong’s Hang Seng fell 1.1%
- The Shanghai Composite fell 0.6%
- Euro Stoxx 50 futures were little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at US$1.1545
- The Japanese yen was little changed at 160.37 per dollar
- The offshore yuan was little changed at 6.7774 per dollar
Cryptocurrencies
- Bitcoin fell 1.4% to US$61,257.19
- Ether fell 2.1% to US$1,624.59
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.54%
- Japan’s 10-year yield advanced one basis point to 2.690%
- Australia’s 10-year yield declined one basis point to 4.91%
Commodities
- West Texas Intermediate crude rose 0.6% to US$88.74 a barrel
- Spot gold fell 2% to US$4,174.64 an ounce
Uploaded by Tham Yek Lee
