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Asian stocks slip, bond yields rise after Fed hawkish comments

Asian stock markets fell on Wednesday as investors faced the possibility of aggressive monetary tightening from the US Federal Reserve to fight inflation, while the focus was also on further Western sanctions against Russia following its invasion of Ukraine.

US Treasury yields hit multi-year highs and stock markets were red after Fed Governor Lael Brainard said overnight that she expects a combination of interest rate hikes and of a rapid runoff from the balance sheet to bring U.S. monetary policy to a “more neutral stance” later this year. .

In early trading in Asia, Japan’s Nikkei lost 1.5%, while South Korean stocks fell 0.8% and Australian stocks lost 1.2%.

Markets in mainland China were due to reopen after two days of public holidays. Chinese authorities on Tuesday extended the lockdown in Shanghai to cover all of the financial hub’s 26 million people, despite growing anger over quarantine rules in the city.

Investors’ immediate attention on Wednesday will be on the release in China of a private services sector activity index, while the main event later in the day will be the release of the minutes of the last policy meeting of the Fed.

Investors should scan the minutes for clues about the prospect of a 50 basis point hike at the next U.S. central bank meeting in May.

“There is currently an 80% chance that the Fed will go down this path,” said Kyle Rodda, market analyst at IG in Melbourne. Investors hadn’t fully priced such a move, so more evidence could move markets, Rodda added.

“It is expected that the Fed could also increase by 50 basis points in June, and if that becomes more likely, a repricing of these risks could trigger a new spike in volatility,” he said.

The European Central Bank will publish its equivalent minutes on Thursday.

Investors were also waiting to see how a new round of Western sanctions against Russia would play out.

The United States and its allies will impose new sanctions on Russian banks and officials on Wednesday and ban all new investment in Russia, the White House announced.

The yield on benchmark 10-year Treasuries continued to rise, hitting a two-year high of 2.6100% before falling slightly. It was last at 2.5973 percent.

The jump in yields following Brainard’s comments also trickled down to the currency market, providing support for the dollar.

The dollar index hit 99.587, its highest since late May 2020.

The greenback was also trading firm against the yen at 123.90 yen given the Bank of Japan’s conviction and repeated actions last week to keep the yield on Japanese 10-year government bonds below. 0.25%.

The euro fell 0.1% to $1.0892.

Rising global bond yields have put pressure on gold, which is yielding nothing.

Spot gold traded down 0.3% to $1,917.92 an ounce.

Oil prices fell under pressure from a rising dollar and growing concerns that new coronavirus cases could dampen demand, despite ongoing supply issues.

U.S. crude fell 0.8% to $101.13 a barrel. Brent was down 0.7% at $105.89 a barrel.


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