Asian stocks sink, yields rise as markets brace for hawkish Fed

Visitors walk past Japan’s Nikkei stock price trading board inside a conference room in Tokyo, Japan, September 14, 2022. REUTERS/Issei Kato/File photo

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TOKYO, Sept 21 (Reuters) – Asian stocks sank and bond yields rose on Wednesday as investors braced for another aggressive interest rate hike by the U.S. Federal Reserve later in the day. on day.

japan nikkei (.N225)it fell 1.26% and hit a two-week low. Australia Benchmark Stock Index (.AXJO) fell 1.35% and South Korea’s Kospi (.KS11) fell 0.9%.

chinese blue chips (.CSI300) decreased 0.82%, while the Hong Kong Hang Seng (.HSI) lost 1.26%.

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MSCI’s broadest index of Asia-Pacific stocks (.MIAP00000PUS) lost 1%.

That follows a sell-off on Wall Street overnight that wiped 1.13% off the S&P 500. (.SPX)although futures pointed to a slightly higher open on Wednesday.

The Fed headlines a week in which more than a dozen central banks announce policy decisions, including the Bank of Japan and the Bank of England on Thursday.

Sweden’s Riksbank surprised markets overnight with a full one percentage point rise and warned of more in the next six months. read more

Despite that, bets on the Fed’s tightening remained stable.

Markets are pricing in an 81% chance of another 75 basis point increase, and see a 19% chance of a full percentage point increase.

Global yields rose amid expectations of further tightening.

The two-year US Treasury yield hit a nearly 15-year high at 3.992% on Tuesday and remained high at 3.9516% in Tokyo trading, while the 10-year Treasury yield hit its highest level in more than a decade.

It reached 3.604% for the first time since April 2011, and was the last at 3.5473%.

Australia’s benchmark 10-year yield rose to a nearly three-month high of 3.789%, and South Korea’s equivalent yield hit the highest level since April 2012.

Markets are “seemingly well positioned for a 75 bps hike coupled with an aggressive update” from the Fed, Taylor Nugent, a markets economist at National Australia Bank in Sydney, wrote in a note to a client.

“Post-meeting comments and updated points will be key,” Nugent said, adding that the NAB was looking at a policy rate of “something like 4%” by the end of this year and no rate cuts are expected until 2024.

The US dollar index, which measures the currency against six major pairs, rose a little higher to 110.22, slipping back towards this month’s 20-year high of 110.79.

The dollar was little changed at 143.64 yen, after twice trying to hit 145 this month, a level last seen 24 years ago.

This week, the BOJ is poised to cement its position as the lone dove among advanced economy central banks by sticking to its extremely accommodative policy that pegs the 10-year Japanese government bond yield near 0%.

The Bank offered to buy 250 billion yen worth of bonds in an unscheduled deal on Wednesday to keep yields in check.

Sterling languished around $1.1372, holding near Friday’s 37-year low of $1.1351.

Markets are divided on whether the BOE will go for a 50 or 75 basis point hike on Thursday.

Crude oil, meanwhile, continued its decline amid concerns that aggressive tightening by the Fed and other central banks would dampen growth and dampen demand.

Brent crude futures fell 26 cents to $90.36 a barrel after falling $1.38 the day before.

US West Texas Intermediate crude was trading at $83.74 a barrel, down 20 cents. The October delivery contract expired down $1.28 on Tuesday, while the more active November contract lost $1.42.

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Reporting by Kevin Buckland; Edited by Ana Nicolaci da Costa

Our standards: The Thomson Reuters Trust Principles.

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