Asian stocks dip, yields edge higher awaiting Fed
Equity benchmarks headed lower in Japan, Australia and South Korea
Asian stocks edged lower at the open Wednesday as investors weigh the strength of the economic recovery in anticipation of the Federal Reserve’s policy statement. Benchmark Treasury yields hovered near their highest levels in over a year.
Equity benchmarks headed lower in Japan, Australia and South Korea. U.S. equity futures fluctuated. The S&P 500 closed lower after three sessions of record-breaking gains, as the energy and industrials sectors weakened. Apple Inc. and Microsoft Corp. lifted the tech-heavy Nasdaq 100, while the Dow Jones Industrial Average also fell from a record high.
The Treasury 10-year yield crept up to 1.63% as the Fed began its two-day policy meeting and a 20-year bond auction drew strong demand. Market-implied inflation expectations are at 12-year highs, and oil ticked up toward $65 a barrel.
With the global economy beating a clearer path out of the pandemic, focus turns to the Fed’s communications on Wednesday. Rates markets are positioned for a hike sooner than the central bank’s current guidance suggests, with rising inflation expectations boosting bond yields and sparking a rotation from growth to value stocks. Seasoned bond investor Bill Gross predicted in a Bloomberg TV interview that inflation will rise to 3% to 4% in the coming months.
“We’re inclined not to fight the Fed, at least until wage pressures show up," Lauren Goodwin, portfolio strategist for New York Life Investments, wrote in a note. “That said, growing uncertainty over the front end of the curve will contribute to market volatility in the coming months."
She expects the 10-year Treasury yield to approach 2% by the end of 2021 and “if rates increase faster than that, we could see some churn in equity markets."
Elsewhere, Bitcoin traded around $56,000, down from a weekend peak above $61,000.
These are some key events this week:
• Fed Chair Jerome Powell will likely reaffirm his steady policy stance at the Fed policy meeting Wednesday.
• Bank of England rate decision Thursday. BOE is expected to leave monetary policy unchanged.
• Bank of Japan monetary policy decision and Governor Haruhiko Kuroda briefing Friday.
Stocks
• S&P 500 futures were little changed as of 9:03 a.m. in Tokyo. The S&P 500 Index declined 0.2%.
• Topix index slipped 0.5%.
• Australia’s S&P/ASX 200 Index fell 0.4%.
• South Korea’s Kospi index dipped 0.1%.
Currencies
• The yen was at 109.04 per dollar.
• The offshore yuan traded at 6.5021 per dollar.
• The Bloomberg Dollar Spot Index was little changed
• The euro was at $1.1905.
Bonds
• The yield on 10-year Treasuries rose two basis points to 1.63%.
• Australia’s 10-year bond yield rose three basis points to 1.72%.
Commodities
• West Texas Intermediate crude rose 0.2% to $64.92 a barrel.
• Gold was little changed at $1,731.84 an ounce.
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