Asia Stocks Face Soft Open After Wall Street Slump: Markets Wrap

(Bloomberg) — Equity futures in Asia indicated declines for share markets across the region Monday after the worst week for stocks and bonds this year as traders increased interest rate expectations ahead of crucial US inflation data due Tuesday.

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Contracts for equity benchmarks in Japan and Hong Kong fell while shares in Australia were flat. The S&P 500 ended the week 1.1% lower, while the tech-heavy Nasdaq 100 fell 2.1%, the worst weekly performance this year for the two indexes. Bond markets also fell with the Bloomberg Global Aggregate bond index dropping 1.6%, the worst weekly run since September.

The action was driven by a swift repricing of interest rate expectations as investors reassess the prospect for US borrowing costs to peak this year. Market pricing now implies rates will peak at 5.2% in July, up from less than 5% a month ago.

Australian and New Zealand government bond yields jumped in early Asian trading following a selloff in US government bonds that pushed the 10-year Treasury yield 7 basis points higher Friday.

Economists forecast US consumer price index data to be published Tuesday will show inflation slowing to 6.2%, which would be the lowest reading since September 2021. The data will provide much-needed direction for the Federal Open Market Committee to set interest rates.

“The next CPI report has become binary – markets will either breathe a huge sigh of relief, or risk aversion will accelerate,” said Eric Robertsen, global head of research and chief strategist for Standard Chartered Plc. “The more the FOMC is compelled to extend the rate-hiking cycle and postpone rate cuts, the more likely it is that the US will experience a hard landing, requiring more aggressive rate cuts later.”

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