US yields drop amid pessimistic signals from the Fed; Hong Kong stocks fell on coronavirus fears
TOKYO (Reuters) – Long-term U.S. Treasury yields fell to their lowest in more than seven weeks on Friday, while the dollar fell near recent lows against other major currencies as markets continued to digest dovish signals from the Federal Reserve.
Expectations of a less aggressive pace of US monetary tightening from next month continued to support some equity markets in Asia, but Hong Kong’s Hang Seng fell sharply as record COVID-19 infections in China dampened the outlook.
The 10-year Treasury yield fell to 3.659%, the lowest since October 5 in Tokyo trading, after the Thanksgiving holiday in the United States on Thursday. The two-year yield fell to a one-week low of 4.44%.
The dollar index, which measures the greenback against the euro, the yen and four other rivals, hovered near Thursday’s low of 105.62, and last settled at 105.86.
Minutes of their latest meeting on Wednesday showed that a “significant majority” of Fed policymakers agreed that it would “likely soon be appropriate” to slow the pace of rate hikes.
Futures markets are showing that investors now see US interest rates peaking almost above 5% in May, and are bidding for about two-thirds odds that the Fed will slow to a half-point hike on December 14 from a series of 75 basis point increases.
“Having seen how the market has reacted — stocks up, bond yields down, the dollar weaker — if I were a Fed, I’d think I’d better say something really hawkish now, or else the last 75 basis points,” said Rob Carnell, an economist at the Fed. ING:
“You want the rate hike to mean something, so I think once everyone has their turkeys up and gets back to work — maybe as early as next week — we’ll hear some very hawkish things coming out of the Fed.”
S&P 500 E-mini futures rose 0.2% to resume Wall Street trading on Friday.
Equity markets in Asia-Pacific were mixed, with the Australian index (.AXJO) managing to gain 0.35%, but a technology-led sell-off in Hong Kong stocks weighed on sentiment in other parts of the region.
The Hang Seng Index (.HSI) declined 0.93%, with the technology sector (.HSTECH) down 2.22%.
Japan’s Nikkei (.N225) declined 0.34%, and South Korea’s Kospi Index (.KS11) lost 0.31%.
China reported a record high number of Covid infections on Thursday as cities across the country imposed localized lockdowns, mass testing and other restrictions, quashing recent optimism about the world’s second-largest economy’s transition from strict anti-coronavirus policies to coexistence with the virus. the disease.
“Investors are right to be concerned,” said ING’s Carnell. “They still in China lack an adequate health network to be able to fully handle the outbreak with so many people infected.”
However, mainland Chinese blue chips (.CSI300) rose 0.51%, supported by government measures to support the real estate market. The real estate developers stock index (.CSI000952) increased by 5.33%.
Oil rose slightly, recouping a bit from this week’s losses, which were driven by concerns about Chinese demand and expectations that the high price ceiling planned by the Group of Seven nations on Russian oil will keep supply flowing.
Brent crude futures rose 13 cents, or 0.2%, to $85.47 a barrel.
US West Texas Intermediate crude futures jumped 35 cents, or 0.5%, from Wednesday’s close, to $78.32 a barrel. There was no West Texas Intermediate settlement on Thursday due to the US holiday.
Both contracts are heading for a third consecutive weekly decline, on track to drop by about 2%.
Gold rose 0.2% to $1,758.44 an ounce amid dollar weakness.
Reporting by Kevin Buckland. Edited by William Mallard
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