Asian stocks fall, US Treasuries yields hold firm after US inflation data

Passers-by wearing protective face masks walk past a stock quotation board, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan January 25, 2022. REUTERS/Issei Kato

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HONG KONG, Feb 11 (Reuters) – Asian stock markets fell on Friday, after searing U.S. inflation data and hawkish comments from a Federal Reserve official fueled bets for a more aggressive rate hike US interest rates and pushed up US Treasury yields.

MSCI’s broadest Asia Pacific ex-Japan equity index (.MIAPJ0000PUS) fell 0.76% as most markets were in the red, although a resurgence in real estate stocks helped larger Chinese markets . Japanese markets were closed for a holiday.

A tracker index of Hong Kong-listed mainland real estate companies (.HSMPI) rose 2% and a tracker of onshore Chinese real estate companies (.CSI000952) gained 1% after a media report that China will allow property companies easier access to pre-sale proceeds from residential projects, easing the liquidity crunch on the sector. Read more

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Wider moves in Asian stocks followed U.S. data on Thursday which showed consumer prices jumped 7.5% last month on an annual basis, beating economists’ estimates of 7.3% and marking the largest annual increase in inflation in 40 years.

Sentiment worsened further after St. Louis Federal Reserve Chairman James Bullard said the data had made him “significantly” more hawkish. Bullard, a voting member of the Fed’s rate-setting committee this year, said he now wants a full percentage point hike in interest rates by July 1.

Although Bullard is one of the Fed’s most hawkish policymakers, contracts traded at the CME Group carried an 88% chance of a 50 basis point hike in March and a nearly 95% chance of a at least 100 basis points by June, up sharply from before the data.

U.S. markets overnight had sold off more aggressively than those in Asia on Friday morning, with the Dow Jones Industrial Average (.DJI) falling 1.47%, the S&P 500 (.SPX) losing 1.81% and the Nasdaq Composite (.IXIC) fell 2.1%.

E-mini futures for the S&P 500 were 0.46% lower at the start of Asian trading.

“Our view is that Asian equities weren’t as overvalued as U.S. equities, so there should be some selective resilience,” said Morningstar Asia equity research director Lorraine Tan, while adding that the market was still digesting a higher cost of capital than it had been used to.

“That said, we think the market has priced in a rise in 10-year Treasuries to 2.0-2.5%. The risk and fear that will lead to a stronger sell-off if yields rise above this level .”

The yield on the benchmark 10-year US Treasury yield hit 2% for the first time since August 2019, and was last at 2.0329%.

Two-year bonds, which generally move in line with interest rate expectations, returned 1.5643% after jumping sharply after the CPI data.

“This reaction is quite significant considering that traders were supposedly expecting a 50-year CPI high,” said Matt Simpson, senior market analyst, City Index. “But with inflation rising 2.1 percentage points in the last four months alone, it’s a good thing the Fed dropped the transitional term,” Simpson said, noting that the U.S. central bank no longer described rising inflation as a temporary phase. .

The jump caused significant volatility in currency markets on Thursday, sending the dollar to a five-week high against the yen.

But those moves slowed late on Thursday as traders recalled the Fed wasn’t the only central bank to tighten policy, but the dollar remained ahead with the euro down 0.2% and the dollars Australian and New Zealanders each fell about 0.3%.

The rising dollar weighed on oil prices and U.S. crude fell 0.41% to $89.51 a barrel. Brent crude fell 0.58% to $90.95 a barrel.

Spot gold fell 0.05% to $1,824.21 an ounce.

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Reporting by Stella Qiu in Beijing and Alun John in Hong Kong; Editing by Simon Cameron-Moore

Our standards: The Thomson Reuters Trust Principles.

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