Bond Losses Extend to Asia as Stocks Tread Water: Markets Wrap

The 10-year benchmarks for Australia and New Zealand rose by around four basis points, mirroring the increase in Treasury yields of the same maturity Wednesday, which came as a $42 billion sale of 10-year bonds saw mild demand. US notes were little changed in Asian trading.

Japanese bonds also dipped as traders mulled a hawkish-sounding summary of opinions from the central bank’s April meeting. Bank of Japan members discussed the potential to cut bond purchases as well as the path for future rate hikes.

The yen was slightly stronger Thursday after an index of greenback strength steadied following a third session of gains Wednesday.

The Japanese currency had earlier weakened to a weekly low as some traders began to worry about a new Asian currency war. Japan’s top currency official, Masato Kanda, said the country would be ready to take appropriate action when necessary but refrained from confirming official support in recent weeks.

Shares in Japan swung between gains and losses, while stocks in Australia and South Korea edged lower. US futures were steady after the S&P 500 and Nasdaq 100 indexes ended Wednesday largely flat, weighed down by losses in megacaps following a string of underwhelming corporate updates.

“All of these ingredients create a perfect recipe for an excuse for investors to take a step back after the recent bounce and reassess things,” said strategists at Bespoke Investment Group.

US-listed shares in Arm Holdings PLC fell as much as 10% in late trading following a tepid annual forecast. Intel Corp. shares also dropped after the US revoked licenses that allowed the firm to sell chips to Huawei Technologies Co. Airbnb Inc shares fell in post-market trade following signs of slowing growth.

In Asia, data set for release includes April trade data for China, where new lending and money supply figures could also be released as early as today. Malaysia will hand down a monetary policy decision, while markets in Indonesia are closed. Elsewhere, Japan’s latest wage figures showed pay gains have now lagged inflation every month for two years.

Investors will also be keeping a close eye on troubled Chinese developer Country Garden Holdings Co., which is seeking help to pay interest due Thursday, said people familiar with the matter.

Investors Hesitant

Lack of conviction among investors to buy into the recent bounce in US stocks shows the market is far from turning fully bullish, said Citigroup Inc. strategists. The recent unwind of short positions has left the S&P 500 close to one-sided net long, but investors appear hesitant to add to the existing bullish positions, a team led by Chris Montagu noted.

“Flows tell a story of limited enthusiasm with a trickle of new long positions and only marginal increase in risk appetite,” Montagu said.

Following a pullback last month, equities resumed their advance in early May as solid corporate earnings bolstered sentiment and speculation grew that the Federal Reserve will be able to cut rates this year. The recent rally brought the S&P 500 about 1% away from its all-time high. 

Inflation figures due next week will offer fresh insights about the US economy after employment data out Friday showed the labor market is cooling. Fed Bank of Boston President Susan Collins signaled Wednesday that interest rates will likely need to be held at a two-decade high for longer than previously thought to damp demand and reduce price pressures.

“Despite the lack of good news on inflation, there is a silver lining for patient investors,” said Mark Hackett at Nationwide. “As the Federal Reserve extends the timeline for interest rate cuts, historical data shows that longer Fed pauses often correlate with better equity returns. This should give investors reasons to be optimistic.”

In commodities, West Texas Intermediate rose by the most in almost two weeks Wednesday. The Biden administration raised the price it’s willing to pay to refill the country’s emergency oil reserves, which have dwindled near the lowest in four decades. Gold prices fell for a second session, ending Wednesday 0.2% lower and leaving prices hovering around $2,310 per ounce.

Key events this week:

Some of the main moves in markets:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

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Published: 09 May 2024, 06:19 AM IST