By Kevin Buckland
TOKYO (Reuters) – Asian stocks slumped on Wednesday as a sharp rise in U.S. bond yields unnerved investors ahead of key inflation data that could inform the pace of Federal Reserve policy easing.
Short-term Treasury yields edged up after jumping to the highest since late July on Tuesday as the market reopened after the Veterans Day holiday, spurring the U.S. dollar to a more than three-month peak versus the yen.
Bond yields have soared since Donald Trump was elected back to the White House last week on expectations lower taxes and higher tariffs will increase government borrowing and push up the fiscal deficit. Trump’s proposed policies are also seen by analysts as fuelling inflation, potentially impeding the path to lower Fed interest rates.
Those same expectations had propelled U.S. stocks to record highs, but the rally stalled overnight as bond yields soared.
“It all continues to be a part of the Trump trade, which, at its core, is about deeper deficit spending,” said Kyle Rodda, a senior financial markets analyst at Capital.com.
“However, as has proven the case in other market melt-ups, a tug-of-war eventually emerges between stocks and bonds, as higher risk-free rates strangle valuations.”
paused for breath after climbing to an all-time high just below $90,000 in the previous session, with markets betting on Trump to usher in an easier regulatory environment after pledging to make the United States “the crypto capital of the planet”. The token traded at around $87,295 as of 0535 GMT.
Commodities were broadly weaker as traders worried about the outlook for key consumer China, which stands to bear the brunt of Trump’s threatened trade tariffs. Stimulus announcements from Beijing so far have failed to stir much optimism over an economic revival.
Hong Kong’s slid more than 1%, with a subindex of mainland Chinese property stocks slumping 2.5%. Chinese blue chips were slightly lower.
and South Korea’s Kospi sagged 1.8% and 2.2%, respectively, while Australia’s stock benchmark fell 1% under the weight of commodity shares.
U.S. pointed about 0.2% lower following a 0.3% decline overnight. Pan-European STOXX 50 futures eased 0.3%.
The two-year Treasury yield stood at 4.351% after leaping to 4.367% on Tuesday for the first time since July 31. The 10-year yield hovered around 4.43%, not far from the four-month high of 4.479% reached a week ago in the immediate aftermath of Trump’s sweeping victory.
“There is a significant layer of technical resistance at 4.48%-4.50% in U.S. 10-year yields,” said Tony Sycamore, an analyst at IG.
“A breach of this level on stronger-than-expected inflation tonight could pave the way for them to extend their gains towards resistance at 4.75% – a move that stock markets might find hard to ignore.”
The dollar edged up to as high as 154.94 yen for the first time since July 30 before last changing hands at 154.88 yen.
That put the currency pair, which tends to track long-term U.S. yields, on the cusp of the 155 yen per dollar level that many market participants consider a trigger point for verbal intervention by Japanese authorities.
Japan’s finance ministry currency czar Atsushi Mimura said last week that officials “are ready to take appropriate actions if necessary when excess moves are seen.”
Technically, if the dollar were to break above 155 yen, “there’s a blank space from 155 to 158, so the pair could rise quickly and test 158, where Japan’s Ministry of Finance intervened in May,” said Shoki Omori, chief Japan desk strategist at Mizuho (NYSE:) Securities.
The – which measures the currency against the yen, euro and four other top rivals – stood at 106.03, not far from Tuesday’s high of 106.17, the strongest level since May 1.
Traders currently lay 62% odds for the Fed to cut rates by a quarter point on Dec. 18 at the conclusion of its next policy meeting, according to CME Group’s (NASDAQ:) FedWatch Tool. A week earlier, the probability was 77%.
A hot reading of the U.S. consumer price index (CPI) later in the day could see those odds reduced further, with economists projecting a 0.3% monthly rise in the core gauge.
The euro changed hands at $1.0614, after dipping to $1.0595 overnight, a one-year trough.
Europe, like China, is seen as hurting more under Trump tariffs, with the incoming U.S. President previously saying the bloc would “pay a big price” for not buying enough U.S. exports.
“Given the downside momentum that’s in play, backed by clearly ever-divergent policy paths expected from Fed and ECB policy, as well as incoming tariff risk, it takes a brave soul to bet against the USD trend at present,” said Chris Weston, head of research at Pepperstone.
The People’s Bank of China pulled the yuan off a three-month low versus the dollar by setting a firmer-than-expected official guidance for the exchange rate, signalling growing discomfort over the currency’s recent rapid decline.
The advanced about 0.1% to 7.2340 per dollar, after dropping as low as 7.2559 in the previous session.
Copper prices edged lower on Wednesday, tracking a stronger dollar and muted demand prospects in top metals consumer China.
Three-month on the London Metal Exchange was down 0.1% at $9,130 per metric ton, and had dipped to $9,107 per ton on Tuesday, its lowest level since Sept. 11.
continued to wallow near the lowest levels this month after OPEC on Tuesday cut its forecast for global oil demand growth this year and next, highlighting weakness in China and some other regions.
futures added 0.3% to $72.07 a barrel, while U.S. West Texas Intermediate (WTI) crude edged up 0.2% to $68.27, not straying far from Tuesday’s lows, which were the weakest levels since Oct. 30.
Gold attempted to find its feet, rising 0.3% to around $2,604 per ounce, following its slump to a nearly two-month low of $2,589.59 in the previous session, pressured by dollar strength.
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