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Asian markets will open Thursday against the backdrop of a rally in Treasuries that was triggered by economic concerns after Federal Reserve Chair Jerome Powell acknowledged the risk of a recession.

Equity futures signal fairly subdued starts in Japan, Australia and Hong Kong. S&P 500 and Nasdaq 100 contracts slipped in early Asian trading.

US shares fell but the losses were contained possibly on crumbs of comfort that the Fed’s interest-rate hiking cycle will be short due to growth threats.

Shorter-maturities led the climb in Treasuries, with two-year yields retreating closer to 3%. A gauge of the dollar declined. In commodity markets, crude oil dropped below $105 a barrel, sapped by fears about the demand outlook. 

Powell said the US has to get high inflation back down to the 2% target. He accepted that steep rate increases could cause an economic contraction and called a soft landing “very challenging" in testimony to the Senate Wednesday.

The odds of the Fed’s rate hiking cycle extending beyond the November policy meeting have diminished sharply as traders continue to price the prospects of a hard-landing and swifter policy reversal next year.

“He has acknowledged that rates will continue to increase, but the FOMC committee is cognizant of watching incoming data, suggesting the Fed will not be exclusively on autopilot with tightening," said Joe Gilbert, portfolio manager for Integrity Asset Management.

Chinese stocks traded in the US snapped a two-day rally. Investors are assessing moves to support China’s economy and loosen a tech-sector crackdown. In Hong Kong, incoming leader John Lee is working on a strategy to reopen the city’s borders, according to a report.

The major focus for markets, however, remains global price pressures and the impact of a wave of monetary tightening in a range of economies.

“Since we hit the S&P highs in January, there has been very little conviction," Alli McCartney, managing director at UBS Private Wealth Management, said on Bloomberg Television. “Inflation is real, it’s been a lot more persistent and global than anyone hoped or expected."

Elsewhere, Bitcoin dropped below $20,000 amid the general mood of caution.

How will the second half of this year play out for major asset classes? We are re-running MLIV’s 2022 asset survey from December to see how street views have evolved amid the turmoil and volatility in the past few months. Click here to participate anonymously.

What to watch this week:

  • Powell US House testimony, Thursday
  • US initial jobless claims, Thursday
  • PMIs for eurozone, France, Germany, UK, Australia, Thursday
  • ECB economic bulletin, Thursday
  • US University of Michigan consumer sentiment, Friday
  • RBA’s Lowe speaks on panel, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.1% as of 7:20 a.m. in Tokyo. The S&P 500 fell 0.1%
  • Nasdaq 100 futures fell 0.3%, The Nasdaq 100 fell 0.2%
  • Nikkei 225 futures rose 0.2%
  • Australia’s S&P/ASX 200 Index futures gained 0.4%
  • Hang Seng Index futures rose 0.8%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%
  • The euro was at $1.0567
  • The Japanese yen rose 0.1% to 136.14 per dollar
  • The offshore yuan was at 6.7118 per dollar

Bonds

  • The yield on 10-year Treasuries declined 12 basis points to 3.16%

Commodities

  • West Texas Intermediate crude fell 1.9% to $104.22 a barrel
  • Gold was at $1,837.76 an ounce.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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