Asia: Markets extend losses with Wall Street as rate hopes dim

ASIAN markets fell on Thursday, with traders tracking losses on Wall Street fuelled by concerns over rising Treasury yields and fading hopes for US interest rate cuts.

The losses in equities extended a more than week-long sell-off that came on the back of forecast-beating data and warnings from Federal Reserve officials that they were in no rush to lower borrowing costs.

A second straight day of weak demand in a Treasuries auction forced yields – a proxy for interest rates – to extend a recent advance.

Traders are now focusing on the release on Friday of the crucial personal consumption expenditures (PCE) index, the Fed’s preferred gauge of inflation, hoping for signs that prices are being brought under control enough to allow officials to ease monetary policy.

The central bank’s “Beige Book” survey of the world’s top economy suggested the outlook had become gloomier, with discretionary spending cooling and consumers more sensitive to costs in recent weeks.

It also said job gains were largely modest to negligible.

The report provided a little hope that the Fed’s tight policy stance was having some effect, though with inflation still stubbornly well above its two per cent target, rate-cut hopes remain dimmed.

Still, Cantor Fitzgerald’s Eric Johnston said the latest spike in Treasury yields might not be entirely down to sticky prices.

“Bond yields may be moving higher mainly due to supply of bonds and the continued massive deficit – and not because of a concern around inflation or strong economy,” he said.

All three main indexes retreated in New York, with the Dow off more than one per cent.

And Asia again followed the US lead.

Tokyo gave up more than one per cent, while there were also losses in Hong Kong, Shanghai, Singapore, Seoul, Wellington, Taipei, Manila and Jakarta.

Sydney was in the red, with mining giant BHP giving back around 1.5 per cent after giving up on its proposed US$49-billion takeover of British rival Anglo American, which would have been one of the biggest in the industry and created a copper titan.

Hopes for a softening of the Fed’s monetary policy have been weighed by comments from a succession of decision-makers saying they wanted to see more data convincing them that inflation was on its way back to two per cent.

The latest was Atlanta Fed chief Raphael Bostic, who saw a cut potentially coming at the end of the year, though many of the indicators he closely watched were moving in the right direction.

“My outlook is that if things go according to what I expect – inflation goes slowly, the labour market slowly and orderly moves back into a sort of a weaker stance, but a stable-growth stance,” he told a conference.

“I’m looking at the end of the year, the fourth quarter, as the time where we might actually think about and be prepared to reduce rates.” AFP