Asian stocks were in retreat on Tuesday as the threat of another extended period of high interest rates cast a long shadow over trading floors.
China’s continuing economic struggles also weighed on sentiment while the yen wobbled near to a one-year low, keeping traders on alert for a possible intervention by the Bank of Japan.
Tokyo’s Nikkei share average slumped to a four-month low as sentiment soured amid higher US yields and the Federal Reserve’s pledge of another long period of tight financial conditions.
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The Nikkei extended losses in the afternoon, dipping as low as 31,157.40 for the first time since June 1 before closing 1.64% lower at 31,237.94. The broader Topix was down 1.68%, or 38.97 points, to 2,275.47.
The benchmark 10-year Treasury yield marched to a fresh 16-year peak above 4.7% overnight after Fed Governor Michelle Bowman and Fed Vice Chair for Supervision Michael Barr reiterated the higher-rates-for-longer refrain at separate events.
The rise in long-term US yields helped push the yen to its lowest in a year at close to 150 per dollar, but that failed to help lift Japanese exporter shares.
Toyota Motor sagged 3.05% and Mazda sank 6%.
The promise of extended tight financial conditions also weighed on crude oil, which tumbled 2% overnight.
Hong Kong shares fell sharply on their first trading day in October, giving back all their gains from the previous session, as US yields hit a 2007 peak.
The Hang Seng Index dived 2.69%, or 478.44 points, to 17,331.22. The Hang Seng Tech Index fell 2.63% and the Hang Seng China Enterprises Index declined 3.24%.
China’s factory activity expanded at a slower pace in September, a private-sector survey showed on Sunday, with sluggish external demand weighing on the outlook even as output increased.
China Evergrande Stocks Dive
Meanwhile, shares of China Evergrande resumed trading and jumped 40% in morning trade, days after the embattled developer said its billionaire founder was being investigated over unspecified crimes.
The shares, which closed 28% down, were suspended last Thursday after a report that its chairman and founder had been placed under surveillance.
Mainland China markets are closed for the Golden Week holiday.
Elsewhere across the region, in earlier trade, Sydney, Mumbai, Wellington, Singapore, Manila and Bangkok were also lower. Taipei and Jakarta were flat and Kuala Lumpur was the sole gainer. South Korea was closed for a holiday.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.6% to its lowest since November 28, 2022.
Futures indicated European stocks were due to open lower, with the Eurostoxx 50 futures down 0.58%, German DAX futures 0.60% lower and FTSE futures down 0.31%.
US Federal Reserve officials said monetary policy will need to stay restrictive for “some time” to bring inflation back down to the central bank’s 2% target.
Fed funds futures traders are pricing in a 26% chance of a rate hike in November, and a 45% likelihood of an increase by December, according to the CME Group’s FedWatch Tool.
Yen Under Pressure
In the foreign exchange market, the focus remains on the Japanese yen as the currency inches closer to the 150 per dollar mark – a level traders have speculated could lead to intervention from the authorities.
The yen was last at 149.89 per dollar in Asian hours, having plumbed a fresh near 12-month low of 149.935 during the session.
Last September, Japanese authorities conducted their first intervention in 24 years, when the yen weakened past 145 per dollar, and speculation has mounted that they will step in again with the yen under constant pressure due to a yawning yield gap against the dollar.
The dollar index, which measures the US currency against six major rivals, rose 0.168% to scale a fresh 10-month peak.
The yield on 10-year Treasury notes was up 0.2 basis points to 4.685% after touching 4.703%, the highest since October 2007.
US crude fell 0.84% to $88.07 per barrel and Brent was at $89.76, down 1.05% on the day.
Meanwhile, spot gold dropped 0.5% to $1,818.10 an ounce. US gold futures fell 0.56% to $1,819.80 an ounce.
Key figures
Tokyo – Nikkei 225 < DOWN 1.64% at 31,237.94 (close)
Hong Kong – Hang Seng Index < DOWN 2.69% at 17,331.22 (close)
Shanghai – Composite <> CLOSED
London – FTSE 100 > UP 0.33% at 7,535.77 (0932 BST)
New York – Dow < DOWN 0.22% at 33,433.35 (Monday close)
- Reuters with additional editing by Sean O’Meara
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