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US yields fall with dollar on dovish Fed bets; HK stocks fall

TOKYO, Nov 25 (Reuters) – US long-term Treasury yields slipped to more than seven-week lows on Friday, while the dollar fell back to recent lows against key peers as markets continued to digest dovish signals from the Federal Reserve.

Expectations of less aggressive US monetary tightening as early as next month continued to support some equity markets in Asia, but Hong Kong’s Hang Seng fell as record COVID-19 infections in China clouded the outlook.

The 10-year government bond yield fell to 3.65% in Tokyo trading, the lowest since October 5, after Thursday’s US Thanksgiving Day. The two-year yield slipped to a weekly low of 4.424%.

The dollar index, which measures the greenback against the euro, the yen and four other rivals, was down 0.11% to 105.76, close to Thursday’s low of 105.62.

A “substantial majority” of Fed policymakers had agreed that it would “probably soon be appropriate” to slow the pace of rate hikes, minutes from its last meeting on Wednesday showed.

Futures markets show that investors now expect US rates to rise just over 5% around May and are pricing in a roughly two-thirds chance of the Fed on Dec. 14 of a series of hikes down 75 basis points to half a point.

“More and more market participants are confident that the peak in long-term yields is over and we are slowly moving towards a Fed pause,” said Naka Matsuzawa, chief Japan macro strategist at Nomura in Tokyo.

The US S&P 500 E-mini futures showed 0.25% higher for Wall Street’s restart of trading on Friday.

Equity markets in Asia-Pacific were mixed, with the Australian benchmark (.AXJO) up 0.24%, but a sell-off in Hong Kong equities weighed on sentiment elsewhere in the region.

The Hang Seng (.HSI) fell 0.86%, led by a 2.29% plunge in the technology sector (.HSTECH).

Japan’s Nikkei (.N225) fell 0.36% and South Korea’s Kospi (.KS11) fell 0.08%.

China on Friday reported another record high in daily COVID infections, with cities across the country imposing localized lockdowns, mass testing and other restrictions, shattering recent hopes that the world’s second-largest economy would move from a strict zero-COVID policy to life would pass with the disease.

“Investors are right to be concerned,” said ING economist Rob Carnell. “China does not have the adequate healthcare network to deal with a widespread outbreak that is making many people sick.”

“Some kind of mid-term life with COVID is a beautiful dream, but how do you get there?” added Carnell.

However, mainland China blue chips (.CSI300) rose 0.54%, helped by further government measures to support the slumping real estate market. An index of real estate developer stocks (.CSI000952) rose 5.84%.

Oil prices rose in Asia on weak liquidity, reversing some of their declines in a week marked by concerns over Chinese demand and haggling over a western price cap for Russian oil.

Brent crude futures were up 28 cents, or 0.33%, to $85.62 a barrel.

U.S. West Texas Intermediate (WTI) crude futures rose 49 cents, or 0.49%, from just under $78.43 a barrel on Wednesday. Due to the US Thanksgiving holiday, there was no WTI settlement on Thursday.

Both contracts were still on course for their third straight weekly decline to drop about 2%.

Gold rose 0.2% to around $1,758 an ounce amid dollar weakness.

Reporting by Kevin Buckland; Edited by William Mallard and Kim Coghill

Our standards: The Thomson Reuters Trust Principles.

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