Treasury Selloff Hits Asia on Rate Bets: Markets Wrap

(Bloomberg) — Heavy selling in Treasuries Friday rippled across Asian debt markets early Monday, weighing on government bonds in Australia and New Zealand after US jobs data forced investors to push out rate cut bets.

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The 10-year Australian and New Zealand yields rose by around 10 basis points in early trading, after their US equivalent rose 14 basis points Friday. Those on two-year Treasuries jumped as much as 20 basis points to over 4.4%, the biggest one-day spike since March.

The driver was a nonfarm payroll report that showed US companies boosted payrolls in January by the most in a year, while prior months were also revised upward.

Investor bets for a rate cut in March by the Fed tumbled Friday to around 20% from almost 40% on Thursday, as economic resilience reduces the likelihood of imminent policy easing.

Despite forecasts for a March cut weakening, “this market still expects five rate cuts this year,” said Ed Yardeni, president of Yardeni Research, in a note. “Fed officials are likely to continue to push back against that notion of so much cutting,” he said.

Asian equity futures were mixed. Contracts for Japan rose, while those for Australia and Hong Kong fell.

Investors will be looking for further clues on Fed policy when Chair Jerome Powell appears on CBS’s 60 Minutes at 7.00pm Eastern Time Sunday — that’s 8.00am in Hong Kong Monday.

Oil markets will also be in focus following US and UK strikes against Houthi targets over the weekend. The Iran-backed Houthis have vowed to respond. The price of West Texas Intermediate may be poised for a jolt after it fell 7.4% last week, its largest one-week decline since October, in a sign of calm despite the instability in the Red Sea.

Story continues

In Asia, Australian trade balance and composite PMI data is set for release, ahead of Tuesday’s Reserve Bank of Australia interest rate decision. Elsewhere, PMI data is also due for Japan, India and China.

China Vows

Investors will be closely watching Chinese equity markets, which fell Friday to extend a prolonged slump. Following the heavy selling, the China Securities Regulatory Commission vowed on Sunday to prevent abnormal fluctuations, saying it would guide more medium- and long-term funds into the market.

A gauge of US-listed Chinese companies fell more than 1% in New York on Friday, echoing similar declines for mainland China benchmarks.

Elsewhere, former US President Donald Trump also signaled he may impose a tariff on Chinese goods of more than 60% if elected, in a fresh round of hawkish rhetoric aimed at the largest supplier of goods to the US.

Investors in Asia will also be gauging the impact of fresh record highs for US stocks after the S&P 500 climbed 1.1% to a new peak on Friday. A strong run of performance for the benchmark comes as February dawns — historically one of the rockiest times of the year for US stocks.

Key events this week:

• China Caixin Composite PMI, Monday

• Eurozone S&P Global Services PMI, PPI, Monday

• Australia rate decision, Tuesday

• Eurozone retail sales, Tuesday

• Germany factory orders, Tuesday

• Poland rate decision, Wednesday

• Thailand rate decision, Wednesday

• Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker speak, Tuesday

• Fed Governor Adriana Kugler, Richmond Fed President Tom Barkin speak, Wednesday

• Bank of England Deputy Governor Sarah Breeden speaks, Wednesday

• CPI data for Brazil, China, Chile, Mexico, Russia, Thursday

• US initial jobless claims, Thursday

• US Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing, Thursday

• Pakistan general election, Thursday

• ECB Chief Economist Philip Lane, ECB Governing Council member Pierre Wunsch speak, Thursday

• European Central Bank publishes economic bulletin, Thursday

• Canada unemployment, Friday

• China aggregate financing, money supply, new yuan loans, Friday

• Germany CPI, Friday

• Australian Reserve Bank Governor Michele Bullock delivers parliamentary testimony, Friday

Some of the main moves in markets:

Stocks

Currencies

• The Bloomberg Dollar Spot Index rose 0.6%

• The euro was little changed at $1.0786

• The Japanese yen was little changed at 148.49 per dollar

• The offshore yuan was little changed at 7.2145 per dollar

• The Australian dollar was unchanged at $0.6512

Cryptocurrencies

• Bitcoin was little changed at $42,735.81

• Ether was little changed at $2,297.46

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Garfield Reynolds.

(Corrects start time of 60 minutes show)

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