(Bloomberg) — Stocks were steady in Asia on Friday amid a global bond rally as investors reassessed expectations for inflation and attendant interest-rate hikes on escalating fears of an economic downturn.
Equities were mixed in Japan, up in South Korea and a little lower in Australia. S&P 500 and Nasdaq 100 futures dipped after US shares closed near session highs on Thursday, up more than 3% over three days.
Australian debt rose while Treasuries held an advance that’s put policy-sensitive two-year yields on course for the biggest weekly drop since March 2020. A dollar gauge was little changed and the yen pared a 1% jump.
Oil trimmed some of its recent losses, rising to about $105 a barrel. A gauge of commodities has retreated to its lowest level since February in further signs of economic angst.
US data and Federal Reserve commentary added to those concerns. Jobless claims hovered near a five-week high and manufacturing and services cooled.
Fed Chair Jerome Powell in testimony to lawmakers reiterated that his commitment to bringing down price increases is “unconditional.” Fed Governor Michelle Bowman said she supports raising interest rates by 75 basis points again in July, followed by a few more half-point hikes.
Investors are grappling with the question of what comes next if an economic downturn takes hold. One scenario comprises cooling price pressures and hence scope for central banks to ease up on the pace of interest-rate hikes.
Traders are starting to price out any Fed action on rates beyond the December meeting, scaling back the additional tightening they expect and flirting with the possibility of cuts by the end of 2023.
Read more: Traders Hedge Fed Cuts in 2023 as Recession Risk Hits Yields
Markets are negotiating “a fraught transition from ‘front-loaded’ synchronized tightening towards demand destruction and peak ‘price-pressure’,” Citigroup Inc. strategists William O’Donnell and Edward Acton wrote in a note.
One of the keys to that shift is the slide in prices for raw materials, which has contributed to a moderation in market-based measures of inflation expectations. There’s a heated debate on whether the trend will continue.
Geopolitical and supply issues mean that energy could return to an “upward trend for at least a couple of months,” Sylvia Jablonski, chief investment officer at Defiance ETFs LLC, said on Bloomberg Television.
Elsewhere, Bitcoin scaled $21,000, extending a bout of relative stability.
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What to watch this week:
- US University of Michigan consumer sentiment, Friday
- RBA’s Lowe speaks on panel, Friday
Some of the main moves in markets:
- S&P 500 futures fell 0.2% as of 9:22 a.m. in Tokyo. The S&P 500 rose 1%
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 rose 1.5%
- Japan’s Topix index was little changed
- South Korea’s Kospi index increased 1.0%
- Australia’s S&P/ASX 200 index fell 0.2%
- The Bloomberg Dollar Spot Index was little changed
- The euro was at $1.0524
- The Japanese yen was at 135.09 per dollar, down 0.1%
- The offshore yuan was at 6.7017 per dollar
- The yield on 10-year Treasuries was at 3.09%
- Australia’s 10-year bond yield fell 15 basis points to 3.71%
- West Texas Intermediate crude rose 0.8% to $105.06 a barrel
- Gold was at $1,825.01 an ounce, up 0.1%