(Bloomberg) -- Stocks fell in Asia after US equities declined and Treasury yields held near multiyear highs as investors position for a hefty interest rate hike from a hawkish Federal Reserve.
Most Read from Bloomberg
Home-Flipper Opendoor Hit With Losses in Echo of Zillow Collapse
Tycoon's Wild $3 Billion Gamble on ‘China's LVMH’ Crashes
Fed Set to Reveal ‘Pain’ Coming in Next Stage of Inflation Fight
Southwest Mexico Struck by 7.5 Magnitude Earthquake, Buildings Sway in Capital
‘Mute Your Phones’: Trump Special Master Hearing Descends Into Chaos
Shares declined in Japan, Hong Kong and Australia after the S&P 500 Index dropped more than 10% below the August high marking the peak of its rally from this year’s low. US contracts fluctuated and European stock futures fell.
Two-year Treasury yields inched back from close to 4% as traders weigh the risk that monetary tightening will push the economy into recession. The Bank of Japan announced an unscheduled bond-purchase operation as it seeks to cap upward pressure on yields before a policy decision later this week.
A dollar gauge traded near a record high amid the market jitters while bitcoin hovered around $19,000 and within sight of recent lows. The offshore yuan fell to the lowest against the greenback since mid 2020, even after the People’s Bank of China set the daily reference rate for the currency stronger-than-expected for a 20th day.
Fed officials are about to put numbers on the “pain” they’ve been warning of when the central bank publishes new economic projections Wednesday. They’re expected to hike by 75 basis points again, according to the vast majority of analysts surveyed by Bloomberg. Only two project a 100 basis points move.
“Volumes remain light and the mood cautious, with few looking to take on large positions before hearing what the Fed says and where policy makers see rates going by the end of the hiking cycle,” said Fiona Cincotta, senior financial markets analyst at City Index. “This is what will drive the markets, not the rate hike tomorrow, but what the Fed plan to do next.”
Nouriel Roubini, who correctly predicted the 2008 financial crisis, sees a “long and ugly” recession occurring at the end of 2022 that could last all of 2023 and a sharp correction in the S&P 500. “Even in a plain vanilla recession, the S&P 500 can fall by 30%,” said the chairman of Roubini Macro Associates. In “a real hard landing,” which he expects, it could fall 40%.
Still, some professional speculators are refusing to surrender to a punishing equity market prone to volatility -- boosting bullish and bearish positions at the fastest rate in five years. As the S&P 500 plunged last week, hedge funds snapped up single stocks while betting against the broad market with products like exchange-traded funds, data from Goldman Sachs Group Inc.’s prime brokerage show.
Christopher Smart, chief global strategist for Barings LLC, said equity markets faced further stress from weaker valuations while certain corners of the credit markets remained attractive. “Investment grade and high-yield are places my colleagues are finding a lot of opportunities,” he said on Bloomberg Television. “The fundamentals of the U.S. economy are very strong. They need to weaken a little bit to cool some of these inflation pressures, but you can find a lot of companies that have strong balance sheets.”
Elsewhere in markets, oil fluctuated around $84 a barrel as it headed for its first quarterly loss in more than two years amid concerns over a energy demand. Gold was steady near a two-year low.
Key events this week:
Federal Reserve decision, followed by a news conference with Chair Jerome Powell, Wednesday
Big-bank CEOs testify before US Congress in a pair of hearings on Wednesday and Thursday
US existing home sales, Wednesday
EIA crude oil inventory report, Wednesday
Bank of Japan monetary policy decision, Thursday
The Bank of England interest rate decision, Thursday
US Conference Board leading index, initial jobless claims, Thursday
Will the Nasdaq 100 Stock Index hit 10,000 or 14,000 first? This week’s MLIV Pulse survey focuses on technology. It’s brief and we don’t collect your name or any contact information. Please click here to share your views.
Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.2% as of 6:35 a.m. in Tokyo. The S&P 500 fell 1.1%
Nasdaq 100 futures increased 0.2%. The Nasdaq 100 fell 0.9%
Japan’s Topix slid 1.2%
Australia’s S&P/ASX 200 Index dropped 1.5%
South Korea’s Kospi Index fell 0.8%
The Hang Seng Index fell 1.4%
Euro Stoxx 50 futures fell 0.1%
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro was steady at $0.9964
The Japanese yen was at 143.95 per dollar
The offshore yuan fell 0.2% to 7.0471 versus the dollar
Bonds
The yield on 10-year Treasuries slipped two basis points to 3.55%
The yield on the Australia’s 10-year government bond rose eight basis points to 3.72%
Commodities
West Texas Intermediate crude fell 0.3% to $84.17 a barrel
Gold futures traded at $1,664.13 an ounce
Most Read from Bloomberg Businessweek
Private Equity Giants Are Having Cash Flow Problems
Why GM Is Taking the Slow Lane in the Great EV Race
The Global Race to Hike Rates Tilts Economies Toward Recession
Business Schools Are Beginning to Embrace Stakeholder Inclusion
©2022 Bloomberg L.P.
