(Bloomberg) — Stocks in Asia followed their US peers lower after Treasuries slumped on bets the Federal Reserve will delay cutting interest rates and concerns about China’s stuttering economy sapped sentiment.
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MSCI’s gauge of regional equities slipped 0.6%. heading for its biggest one-day drop in more than two weeks. China’s benchmark stock index slid to the lowest since September with investors concerned government stimulus measures will fail to revive the economy. The S&P 500 sank more than 1% Tuesday as a report on US service providers showed inflation hitting the highest since early 2023.
“We must ask whether there is reason to buy risk today, and with the overnight developments, I’d argue that there isn’t,” said Chris Weston, head of research at Pepperstone Group Ltd. in Melbourne.
Regional economic uncertainties are damping investor optimism, with Chinese markets indicating growing alarm over a deflationary spiral. That comes as yield premiums in credit are near their lowest since the global financial crisis, testing investor appetite for a spate of deals that are flooding global debt markets.
Investors in China’s $11 trillion government bond market have never been so pessimistic. Yields on the nation’s 10-year bonds have tumbled to all-time lows in recent weeks, and are now more than 300 basis points below their US peers. That’s despite a slew of economic stimulus measures announced by President Xi Jinping’s government.
China maintained its tight grip on the yuan Wednesday through its daily reference rate. The People’s Bank of China set the so-called fixing at 7.1887 per dollar, 1,528 pips stronger than the average estimate in a Bloomberg survey of traders and analysts. The widening gap shows policymakers’ intention to prevent a rapid yuan selloff.
Samsung Gains
South Korean stocks bucked the downward trend, boosted by Samsung Electronics Co. The tech giant’s shares rose despite disappointing quarterly results, as Nvidia founder Jensen Huang expressed confidence in Samsung’s ability to resolve technical issues dogging its highest-end memory.
Treasuries were little changed in Asia after falling across the curve Wednesday. The 10-year yield remained near its highest levels since April after jumping six basis points Tuesday.
“With the trough in yields more than 100 basis points lower and more than three months ago, we think this should also help yields find greater stability in the coming weeks,” JPMorgan Chase & Co. strategists Jay Barry, Jason Hunter and Phoebe White wrote in a note.
