Stocks extend selloff in Asia; US futures rebound: markets wrap

STOCKS sank deeper into a bear market Tuesday amid growing expectations of sharper Federal Reserve interest-rate hikes to fight inflation.

An Asian share index fell over 1.5%, with bourses from Japan to China and Hong Kong in the red. But US and European futures pushed higher, hinting at some stabilization in sentiment after a three-day rout in the S&P 500 of nearly 9%.

Shorter-maturity Treasuries dropped while longer tenors edged up following a rout Monday, deepening a yield curve inversion that underscores worries about an economic downturn sparked by tighter monetary policy.

Australian and New Zealand debt retreated, while the Bank of Japan boosted bond-purchase operations to keep yields in check. The yen dipped and was near a 24-year low against the dollar.

Traders now see about 200 basis points of tightening by the Fed’s September decision and the possibility of a 75 basis-point hike. They expect the overnight rate to peak at 4% by mid-2023. The dollar hovered near a two-year high.

Speculative investments have suffered in the risk-asset selloff. Bitcoin slid as much as 10% to around $21,000 before paring a chunk of the retreat.

The highest inflation in a generation, stoked by supply-chain and commodity-market disruptions amid China’s Covid struggles and the war in Ukraine, is roiling the outlook. The big question is how much the Fed and others will have to tighten financial conditions to quell price pressures, risking a recession.

“It’s clear that the Fed put is over,” Ellen Hazen, chief market strategist at F.L.Putnam Investment Management, said on Bloomberg Television. “What you are seeing is that real rates are going up as well as nominal and what that means is that this era of easy money that we’ve seen for the last decade and a half with real rates very, very low or negative is coming to an end.”

Bets on a 75 basis-point Fed move hardened following a Wall Street Journal report suggesting the larger increment was now in play. Some commentators even floated the idea of a 100 basis-point hike.

In commodities, oil held above $120 a barrel as investors evaluated a tight supply outlook and the impact of China’s eventual return from virus curbs. — Bloomberg
What to watch this week:

• US PPI, Tuesday.
• FOMC rate decision, Chair Jerome Powell briefing, US business inventories, empire manufacturing, retail sales, Wednesday.
• ECB President Christine Lagarde due to speak, Wednesday.
• Bank of England rate decision, Thursday.
• US housing starts, initial jobless claims, Thursday.
• Bank of Japan policy decision, Friday.
• Eurozone CPI, Friday.
• US Conference Board leading index, industrial production, Friday

Some of the main moves in markets:

• S&P 500 futures rose 0.7% as of 12:50 p.m. in Tokyo. The S&P 500 fell 3.9%.
• Nasdaq 100 futures climbed 0.8%. The Nasdaq 100 fell 4.6%
• Japan’s Topix index dropped 1.7%
• South Korea’s Kospi index shed 1.3%
• Australia’s S&P/ASX 200 Index fell 4.8%
• Hong Kong’s Hang Seng Index slid 0.9%
• China’s Shanghai Composite Index fell 1.6%
• Euro Stoxx 50 futures rose 0.3%

• The Bloomberg Dollar Spot Index slipped 0.1%
• The euro was at $1.0427, up 0.2%
• The Japanese yen was at 134.57 per dollar, down 0.1
• The offshore yuan added 0.4% to 6.7558 per dollar

• The yield on 10-year Treasuries fell one basis point to 3.35%
• Australia’s 10-year bond yield jumped 30 basis points to 3.98%

• West Texas Intermediate crude was at $120.71 a barrel, down 0.2%
• Gold was at $1,825.43 an ounce, up 0.3%