Asian equities and US futures saw declines, signaling caution among investors as they await crucial jobs data that will provide insights into the outlook for interest rates. Stocks in Japan and Australia edged lower, while Hong Kong’s market saw fluctuations. Futures for the S&P 500 dropped for the second consecutive day, following the US trading holiday on Thursday to observe a national day of mourning for former President Jimmy Carter.
In the bond markets, U.S. Treasuries advanced in Asian trading after a selloff earlier in the week that pushed 30-year yields to their highest level since 2023. Chinese yields rose after the People’s Bank of China surprised markets by halting its government bond purchases. This move came after the benchmark yield had fallen to a record low. The offshore yuan inched higher against the dollar.
Khoon Goh, head of Asia research for Australia & New Zealand Banking Group, noted that China’s decision to pause its bond-buying program could help stem the decline in Chinese bond yields and indirectly support the yuan by narrowing the yield gap with the U.S. However, Goh added that should U.S. yields continue to rise, pressure on the yuan would likely persist.
Global financial markets have experienced heightened volatility since the start of the year, with rising Treasury yields reflecting a shift in investor expectations regarding the pace of Federal Reserve easing. This change in sentiment has rippled through Asia, already weighed down by slowing Chinese growth, affecting risk appetite. The MSCI Emerging Markets (EM) stock index has recently entered correction territory.
Several Federal Reserve officials reaffirmed Thursday that the central bank is likely to maintain interest rates at current levels for an extended period, with cuts only occurring once inflation shows clear signs of meaningful decline.
“The Fed is concerned about the incoming administration,” said Skyler Weinand, chief investment officer for Regan Capital, in an interview with Bloomberg Television. Weinand explained that a combination of the growing U.S. fiscal deficit and strong consumer demand could lead to “higher interest rates for the next five to ten years.”
The U.S. dollar index remained little changed after a three-day advance, while the yen stabilized around 158 per dollar. Traders remain vigilant about the possibility of Japan intervening to support the yen, especially with the U.S. jobs report set to be released, which could trigger sharp movements in the currency.
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