Following robust US economic indicators and firm statements from Federal Reserve officials, expectations are growing that interest rates may not decrease as previously hoped. This anticipation led to a downturn in US stocks and bonds, with similar negative sentiment expected to impact Asian stock markets in early trading sessions.
In light of these developments, futures in Australia, Japan, and Hong Kong are showing a downward trend, whereas South Korea and China are seeing a slight uptick. Meanwhile, US equity futures have stabilized after a continuous decline in the S&P 500, primarily driven by the tech sector.
The bond market is also feeling the pressure, with yields on two-year US Treasuries nearing the 5% mark again. Amid these fluctuations, the dollar is gaining strength, while the yen experiences volatility due to concerns over rapid currency movements. Despite these dynamics, markets are still factoring in a potential quarter-point rate cut by the Federal Reserve in November.
This week has been particularly challenging for global markets, with a significant reduction in bets for Federal Reserve easing this year, triggered by hawkish comments from Fed officials and data showcasing a strong US economy. This has resulted in the MSCI All Country World Index falling by 2.1%, marking its most substantial weekly decline since October. Market volatility, as measured by the VIX, has reached a five-month high.
Statements from Fed officials, including New York Fed President John Williams and his Atlanta counterpart Raphael Bostic, suggest that rate hikes could be on the horizon if necessary, though not immediately expected. Minneapolis Fed President Neel Kashkari also hinted at the possibility of maintaining current rates throughout the year.
Recent US economic data, including jobless claims and factory indexes, indicate a robust job market and manufacturing sector, respectively. However, existing-home sales have slightly declined, aligning with economists' forecasts.
According to Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, the primary concern for the market is re-accelerating inflation, which dampens hopes for rate cuts in 2024. He advises investors to brace for prolonged periods of high inflation and interest rates.
Investors in Asia are keenly awaiting Japanese inflation data, which could signal further tightening by the Bank of Japan. Oil prices remain stable, while gold sees an uptick amid increased demand and geopolitical tensions.
Corporate developments include Alphabet Inc.'s restructuring to expedite AI product development, Micron Technology Inc.'s substantial grants for domestic production, and Alaska Air Group Inc.'s positive profit outlook. Additionally, Las Vegas Sands Corp. anticipates a dip in results due to renovation projects, eBay Inc. benefits from AI integration, 23andMe considers going private, and Blackstone Inc. enjoys increased fee revenues. L'Oréal SA also reports strong sales, buoyed by performance in Europe and North America.
Key events to watch include Japan's CPI data, speeches from central bank officials, and comments from Chicago Fed President Austan Goolsbee.
