Asian Stocks Slump Amid Rising U.S. Bond Yields and Inflation Concerns
By Kevin Buckland
Asian stocks took a hit on Wednesday as a sharp increase in U.S. bond yields left investors uneasy ahead of key inflation data that could influence Federal Reserve policy decisions. Short-term Treasury yields surged to their highest level since late July, sparking the U.S. dollar to a three-month peak against the yen in the latest trading session.
The surge in bond yields followed Donald Trump’s reelection, with expectations of lower taxes and increased tariffs leading to a higher fiscal deficit and government borrowing. Analysts believe Trump’s proposed policies could drive inflation, potentially complicating efforts to reduce Fed interest rates.
This upsurge in bond yields has put pressure on U.S. stocks, which had previously reached record highs amidst the expectations of Trump’s policies. Kyle Rodda, a senior financial markets analyst at Capital.com, noted that the market dynamic is a result of the “Trump trade,” driven by deeper deficit spending that impacts both stocks and bonds.
While U.S. stocks wavered, Bitcoin made gains back towards its all-time high, hovering just below $90,000. Market participants are optimistic about Trump’s pledge to establish the United States as a crypto-friendly environment.
Commodity markets faced weakness as traders fret over the impact of Trump’s proposed trade tariffs on China. Despite Beijing’s efforts to stimulate the economy, there is little optimism for a strong economic recovery.
The Hang Seng in Hong Kong fell by 0.9%, with mainland Chinese property stocks plunging by 1.3%. In Japan, the Nikkei and South Korea’s Kospi dropped by 1.1% and 1.2%, respectively. Australia’s stock benchmark also declined by 1.1%, primarily driven by weakness in commodity shares.
Looking at U.S. futures, the S&P 500 was expected to open about 0.1% lower following a 0.3% decline. The two-year Treasury yield jumped to 4.34%, while the 10-year yield neared 4.43%, not far from the four-month high reached a week earlier after Trump’s victory.
The U.S. dollar climbed to 154.94 yen, its highest level since July, before settling at 154.56 yen. Market participants are closely monitoring the currency pair, which is approaching the 155 yen per dollar level that could trigger intervention by Japanese authorities.
As investors assess the possibility of a Fed rate cut in December, the U.S. dollar index stands at 105.92, near its recent high. Traders are currently betting with a 60% probability for a quarter-point rate cut, down from 77% a week ago.
Meanwhile, the euro remains under pressure, hovering near one-year lows against the dollar at $1.0625. Concerns persist over the impact of Trump’s tariffs on Europe, with the President warning of repercussions for insufficient U.S. exports.
Copper prices dropped by 2% to a two-month low on the London Metal Exchange, while crude oil prices struggled near monthly lows after OPEC revised its global demand growth forecast. Brent futures edged up to $72 a barrel, with WTI crude hovering around $68.26.
In the precious metals market, gold rebounded by 0.4% to approximately $2,607 per ounce after hitting a two-month low in the previous session due to the strength of the U.S. dollar.
As markets remain volatile amidst policy uncertainties, investors are advised to stay informed and proactive in managing their investment portfolios.
(Source: Reuters; Compiled by Extreme Investor Network)