Asian Stock Market: Bears in town amid hawkish Fed expectations

• Asia-Pacific shares print losses amid market’s fears of higher rates.
• Risk-negative headlines concerning China, Russia adds strength to the risk-off mood.
• Yields dribble around multi-year top, stock futures fade bounce off two-month low.
• Japan’s bond-buying announcement, RBA’s Bullock fail to gain major attention.

Equities in the Asia-Pacific region trace Wall Street’s losses as markets brace for the US Federal Reserve’s (Fed) monetary policy announcements. That said, the hopes of higher rates join the geopolitical tension surrounding China and Ukraine to weigh on the sentiment early Wednesday.

While portraying the mood, the MSCI’s Index of Asia-Pacific shares outside Japan drops 0.67% intraday by the press time, retreating towards the 26-month low marked the previous day. Also suggesting the sour sentiment is Japan’s Nikkei 225, down 1.20% around a two-week low. Nikkie’s losses could be linked to the Bank of Japan’s (BOJ) readiness for buying Japanese Government Bonds (JGBs). “BOJ offers to buy JGBs at fixed-rate with unlimited amount (Residual maturity of 5YR to 10YR) outright from September 22,” said Reuters.

Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. Joining the line is the news of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, which recently challenged the market sentiment and strengthened the safe-haven demand.

Furthermore, headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appear to challenge the market’s risk appetite. Additionally, Russia’s plans for occupied regions and the Western agitations for the same also weigh on the risk appetite. “Moscow-installed leaders in occupied areas of four Ukrainian regions plan to hold referendums on joining Russia in coming days, a challenge to the West that could sharply escalate the war and which drew condemnation from Ukraine and its allies,” said Reuters.

The same drowns stocks in China and Hong Kong by around 1.0% whereas Reserve Bank of Australia (RBA) Deputy Governor Guy Bullock’s readiness to ease the rate hike, if needed, couldn’t favor Aussie stock buyers as ASX drops 1.5% at the latest. Further, New Zealand’s NZX 50 prints nearly 1.0% intraday losses as we write.

On a broader front, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high. It should be noted that the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top on Tuesday.

Looking forward, a slew of central bankers are up for conveying their monetary policy decisions and most of them are likely to adhere to policy tightening, which in turn could exert downside pressure on equities.

Also read: S&P 500 Futures pare recent losses as yields retreat from multi-year high ahead of Fed