Asian stocks fell to their lowest level in a week on Friday due to elevated Treasury yields, which dampened sentiment after hawkish comments from U.S. Fed Chair Jerome Powell. The MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1% to a one-week low, signaling a fourth consecutive session of losses and a weekly decline of 0.5%. The somber mood is expected to continue in Europe, with futures indicating a significantly lower open for Eurostoxx 50, German DAX, and FTSE. Powell’s comments, along with a weak auction of 30-year Treasuries, pushed yields higher, casting a shadow on equities and supporting the dollar. Some investors believe Powell’s hawkish stance may be a response to recent loosening of financial conditions, which has occurred as yields have fallen in recent weeks. According to Rob Carnell, Asia-Pacific head of research at ING, the Fed needs to maintain reasonably high rates and bond yields to achieve tighter financial conditions, lower inflation, and ultimately cut rates. The three major U.S. stock indices closed lower on Thursday, ending the longest winning streaks for the Nasdaq and S&P 500 in two years. U.S. rate futures have priced in a 60% chance of a rate cut at the Fed’s June 2024 meeting, compared to 70% odds before Powell’s speech. Chinese stocks eased 0.6%, while Hong Kong’s Hang Seng Index was 1.6% lower due to concerns over the Chinese economy. The yield on 10-year Treasury notes eased slightly, while the dollar index held onto its overnight gains. U.S. crude and Brent rose, but the oil market has been under pressure this week due to demand concerns. Spot gold remained relatively unchanged, but it is on track for its worst week in over a month.
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